Dolat Capital Market's research report on Nucleus Software Exports
Nucleus revenues declined 9.5% QoQ at Rs 1.24bn way lower than our estm of 6.7% QoQ growth. Performance was impacted by delayed ramp up in certain implementations in remote mode, although orders still stand intact. Product segment (83% of rev) were down by 10% QoQ. Order book stood at Rs4.5bn down 6% QoQ at Rs 4.5bn, (up 3% on YoY basis). This implies very modest Net New order additions of about Rs941mn for the quarter down 14% YoY (down 7% on TTM basis). EBIT margin declined 340bps QoQ at 18.6% (DE 27.9%) as company made another provision towards special bonus payout to employees of about Rs75mn (in Q2 it was Rs150mn), and thus cost decline was lower. Also its other operating expenses jumped up by 20.7% QoQ as it now has resumed to normalized cost level (ex-travel). Other expenses are still down by 41% on YoY basis. Despite soft quarter, management commentary remained confident backed by 3 new client wins and 5 product orders in the quarter. However, we expect further softening of order-to-revenue conversion and poor order addition as a constraint for growth/margin improvement.
Outlook
Given its robust long term potential we remain cautiously optimistic on the stock and maintain Buy rating on the stock with TP of Rs 650 (implies 12x on FY23E earnings).
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