Four Soft, a small company
in Supply Chain Logistics space, in existence over the last 15 years, backed by Kotak PE and ChrysCap founder
Ashish Dhawan among others, which I bet on over the last few years has
finally come a full circle. More details on this company can be found here.
Exactly a year and a quarter
after I wrote about this and suggested keeping an eye on it so that when it
catches someone’s eye, the returns could be bountiful, the event was triggered.
It was quoting at around Rs. 8/- then (May ’12). Founded in 1999, Four Soft has 10
global offices, 8 development centers and employs over 550 people. In August of
this year (2013), it sold off its most significant and profitable core business
of logistics software solution and stake in all its foreign subsidiaries (Four Soft BV, Four Soft Singapore
Pte Ltd and Four Soft USA Inc.) to Kewill Group of UK. And
all this on a turnover of Rs 132 crore and net profit of Rs 11 crore for the
full year 2012-13. Goes on to show that if u have a good business, people will
be willing to pay a reasonable price for the same. And the management was
transparent enough to share the booty with its shareholders when it declared a
dividend of Rs 29/share from the sale proceeds, a move which a few others have
done (Riddhi Siddhi Glu Biols and Gwalior Chemicals being cases in point where
in spite of getting a huge bounty from the sale of their key businesses, the
management hardly cheered the shareholders by paying a pittance compared to
what they received, parroting out the line that it was prudent to retain the
funds for future businesses the companies ventured into. It is a different
matter that there is as yet no sign of any meaningful activity in the proposed
businesses as well as the use of the received money in the hands of the
promoters). So effectively the shareholders have Rs 47/- (Div- 29 + CMP 18) as
of today (25-Oct-13) from Rs. 8/- 17 months back. Further the management has
proposed to reduce the face value of the share from Rs 10/- to Rs. 5/- and
return the money to the shareholders since it honestly accepted that there was
no need for additional funds for the remaining and proposed business. But this
process is likely to take 6 months or so after all regulatory approvals are in
place.
Going forward, the company
proposes to enter into 4 new LOBs
- ERPs for the media and entertainment vertical
- Application Development & Maintenance (ADM) - Value added services mostly in the development and testing because they have built frameworks for development using Spring and Hibernate and with Selenium for testing
- Online e-commerce portals which will have a technology backbone that will be quite different and unique from the online retail and e-commerce companies that exist currently
- Generic IT service
As
per management commentary, going forward, the EPS could be Rs 2 or even Rs 1,
but one is talking about a company that is almost in a start up mode. So with
bountiful returns in hand and no visibility of profits over the foreseeable future by the management's own admission, there is no point in holding it now, once the dividend has been
credited to the bank account. It would be interesting to see the performance of
the remaining company (now renamed as Palred Technologies) in the proposed
areas it plans to work in, especially in a difficult business environment. The
only reason for holding on could be the gain of another Rs. 29/- once the
capital reduction scheme clears all the regulatory process and faith in the competency
of the honest promoter/management Mr. P. S Reddy who has been generous enough
to share the spoils of the sale with the minority shareholders.
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