Nucleus Software Exports NCS:IN
October 22, 2019 - 9:31am EST by
2019 2020
Price: 315.00 EPS 26 27
Shares Out. (in M): 29 P/E 12 11
Market Cap (in $M): 128 P/FCF - -
Net Debt (in $M): -73 EBIT 11 12
TEV (in $M): 55 TEV/EBIT 5 4.5

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  • India


Investment summary 

Nucleus Software is a niche Indian IT services small cap that is currently available for approx 18-20% free cash flow yield, as its stock is at a 2 year low, while revenue and earnings have grown during this period. 

The company has a market cap of approx $128mm. Cash & equivalents and investments on balance sheet of $73mm (this accounts for nearly 57% of market cap) equates to an enterprise value of $55mm. The company has had a consistently net cash balance sheet.

On average free cash flow in the last 3 years has been over $10mm and I expect this figure to be predictable in the coming years, with upside potential. 

The company has generated positive operating cash and free cash flow for 17 years and paid dividends every year for the last 17. The company conducted share repurchases 2 years ago, when the stock was at current levels, which were timely and a positive. 

Out of the last 20 years, revenue has grown 16 out of the 20 years, with the last 2 years witnessing 10.6% and 17.5% growth. In the last 12 months, revenue has grown ~15%. 

The company's return on unlevered equity is above 30% excluding its cash pile, so comfortably earning above cost of capital. If it can continue to grow at ~10% levels, at current valuations the stock is cheap

Importantly, the company's cloud business has been doing well, and leading to improved deal wins for the company.  The company added about 27 new orders in FY19, including 13 for the cloud offering – FinnOne Neo Cloud. The traction in cloud deals during the year has resulted in strong revenue traction.

As per the company's "We gained over 25 new customers for our revolutionary cloud lending solution - FinnOne Neo Cloud, since the launch of this solution"

the company spends about 6-7% on R&D expense

Given its small cap nature, and the float of ~30%, the stock is more suited for global value small cap funds or Indian small cap funds.  


Business description

The company is a niche IT services provider of lending and transaction banking products to the financial services industry. Its software powers the operations of more than 150 companies in 50 countries, supporting retail banking, corporate banking, cash management, internet banking, automotive finance and other business areas.

Nucleus launches newer versions of its niche cloud-native solutions Finnone (for Lending) and Finnaxia (Corporate banking) on six-monthly basis. This strategy of frequent version releases has helped company to move away from perpetual licence sales model to fixed-term based licence fees that would help the total potential revenue-streams from same client. It has two flagship products:

FinnOne 10 time winner - World’s Best Selling Lending Solution.

FinnAxiaTM, an integrated global transaction banking solution used by banks worldwide to offer efficient and Innovative global payments and receivables, liquidity management and business internet banking services.

PaySe, the world's first offline digital payment solution offering online capabilities, is designed and created with an aim to democratize money

In the last quarter, the company announced:

Added 5 new customers in the quarter from various geographies and won 8 new orders worldwide including 1 in Australia and 7 in India

Launched the latest version of its award winning lending solution - FinnOne Neo 4.0. The new version comes with a wide range of features that will help lenders capitalize quickly on rapidly evolving market trends and changing customer requirements and, above all, to turn the digital opportunities into profits

Launched upgraded version of our transaction banking solution - FinnAxia (GA 6.5), empowering banks to embrace Artificial intelligence and weave it into their business strategy

Although the financial performance for Q1FY20 was modest, company reported growth of about 23% QoQ in its unexecuted order book at Rs4.6bn with 8 client additions. Product/Services order book were up 24%/19% QoQ.

The order book traction means that the company should have double digit revenue growth for FY20.



Financial summary: 

Year Net profit Operating cash flow Free cash flow
2019 10.8 8.1 6.6
2018 9.6 11.8 10.7
2017 10.2 14.7 14.1
2016 4.9 4.9 3.7
2015 10.4 5.9 4.4
2014 10.7 10.9 7.7
2013 8.3 13.8 12.4



Insiders own about 2/3rd of the stock. Key insiders are: SM Acharya, Chairman, Vishnu Dushad, Managing Director and RP Singh, CEO 



I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


Acceleration of growth in the mid teens given its cloud platform progress 

Share repurchases - the company has done so in the past 


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