Nucleus Software Exports - Banking Software Solutions
Known for Loan Management Software "FinnOne"
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Nucleus Software Exports is primarily known for its lending & transaction banking software solution products. Overall, company carters to 200 financial institutions across 50 countries.
While core banking system (CBS) provide end to end use cases, Nucleus Software’s products are primarily driven by NBFCs, legacy banks, smaller banks where need for an all-encompassing CBS is not there, and institutions use Nucleus for its Lending management solution. Given its client relationship history & critical use case, there is a good retention.
Its primary center of business & profitability is India (accounts for 55% of revenue, 75% of profits), key customers as per website being Bajaj Finance, Chola, IndusInd Bank, Muthoot, etc. Apart from India, other key region is South East Asia, Middle East & Africa, Australia & some parts of Europe.
India business is already well penetrated, while Nucleus hasn’t been very successful yet to scale in Europe & North America. As a result, revenue growth has been ~7-8% over 5/10 year period. Starting FY23, they have been highlighting consistently over investor calls about the price hikes that they are trying to push through the users. These conversations take some time, but favorable revenue impact has started to become visible form 3QFY23 (+30% QoQ).
At an Enterprise Value of Rs 750 crore, for Rs 130-140 crore FY23E EBIDTA, stock trades at close to 5.5x EV/EBIDTA. 3QFY23 EBIDTA stood at Rs 48 crore (highest ever in past many years), as they got the benefit of price hikes. As they expect more of their customers to agree to price hikes, there could be EBIDTA upgrades in FY24. Revenue growth expectations are low but factored in prices. Overall, won’t look at it as a growth stock, but it does offer a value at this price!