Wednesday, December 31, 2014

RS Software - Review from 23 Apr 2014

The RS software review from April 23, 2014. The stock has run up quite a bit since then. May be still decent to buy but the margin of safety is ZERO which makes me fearful so I am ambivalent.


RS Software

A payments processing IT services company.

1. How good is the moat?

B+ Grade
  • Brand: Brand might not be much but in India this is one of the few companies doing the IT infrastructure for payment processing systems. Typically tenure is important in the payment processing space as the protocols and ability to take risk is lower. Which is why I believe that competition will be touch. Large companies like TCS, Infosys, etc have practices in this area as well but probably are not as focused.
  • Product replication: Replication for a new entrant is harder because of the risk involved in a new player and the requirement for six sigma beating reliability.
  • Sales and distribution - not big advantage here over the big guys.
  • Vendors - not great moat here.
  • Employees - there is a lot of focus on employees. In fact the average compensation per employee is far higher than TCS or Infosys at 20L/year. There is a RS Software employees welfare trust (RSSEWT) that owns stock in the company. The idea behind the trust is noble although the company is rapidly giving loans to the trust and I don't understand why.
  • Performance during recessions - this seems to be fairly recession proof as payment transactions have to be done for the economy to run and rapid improvements are required in the space. There might be some dips but not huge ones.