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Nucleus Software Stock Report

October 17, 2005 | Press Release
Nucleus Software reported good results for the quarter ended September 2005. The products business maintained its strong growth momentum contributing to 36% of total sales revenues. Client addition remained healthy with the company adding 6 new clients (5 new product orders for its flagship product FinnOne and Cash management) and total order book of around Rs 1100 mn. Nucleus’ operating margins declined sequentially to 30% from 32.8% on account of salary hikes during the quarter. Going forward, we expect products business to be the main growth driver for the company. At CMP of Rs 280, the stock trades at 13.3x FY06E EPS of Rs 21.1 and 10x FY07E EPS of Rs 27.9. We remain positive on Nucleus business prospects and maintain our ‘Accumulate’ rating on the stock.

Products drive growth
Nucleus reported good 2Q FY06 performance with 8.8% q-o-q growth in sales revenues to Rs 357.3 mn and 2.4% growth in net profit to Rs 87.9 mn. Product segment reported healthy 13.3% q-o-q growth in sales revenues to Rs 128.3 mn and contributed to 35.9% of sales as against 34.5% in the previous quarter. Projects business remained almost flat at Rs 194.6 mn and contributed to 54.5% of sales, while professional services contributed to 9.6% of total sales.

Salary hike restricts margin expansion
Nucleus’ gross margins during the quarter declined from 48.8% to 44% amid salary hikes during the quarter. However flat selling and marketing and lower general and administrative expenses resulted in operating margin decline to 30% from 32.8% in the previous quarter.

Other result highlights: ‰

  1. 6 new customers added during the quarter taking the total active clientele to 105.
  2. ‰Healthy order book at around Rs 1100 mn out of which product orders stood at Rs 630 mn.
  3. Debtor days reduced to 59 days from 72 days in the previous quarter. ‰
  4. GMAC order status – Italy moving well, however China has got delayed due to infrastructure issues with the client. ‰
  5. Added 54 employees during the quarter taking the total employee base to 989.
Valuations and investment view
With good 1H FY06 performance, we believe Nucleus is on track to achieve our FY06E estimates of Rs 1363.4 mn sales revenues and net profit of Rs 340.1 mn. At CMP of Rs 280, the stock trades at 13.3x FY06E EPS of Rs 21.1 and 10x FY07E EPS of Rs 27.9. We maintain our ‘Accumulate’ rating on the stock.

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About Nucleus Software

Nucleus Software (BSE & NSE: NUCLEUS) is the leading provider of lending and transaction banking products to the global 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 Software is known for its world-class expertise and innovation in lending and transaction banking technology. It has two flagship products, built on the latest technology:
  • FinnOneTM 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.
Forward-looking and Cautionary Statements: For risks and uncertainties relating to forward-looking statements, please visit: http://www.nucleussoftware.com/safe-harbor.

For Media related information, please contact:

Rashmi Joshi, Nucleus Software
Email: rashmi.joshi@nucleussoftware.com
Phone: +91-9560694654