Nucleus Software Q1 Results Review - Big Miss; Sustained Order Book Growth Drives Hope: Dolat Capital

Dolat Capital Report

Nucleus Software Exports Ltd. reported revenue of Rs 2 billion (down 7.1% QoQ, versus our estimate: +2.7%) led by both - delay in new client/deal conversions and absence of AMC repricing. Ebitda margin dropped to 14.8% (down 1,288 basis points QoQ) versus estimate of 27.3% led by higher employee cost (up 13% QoQ) owing to higher than usual wage hikes.

Nucleus Software's order book stood at Rs 8.1 billion (up 4% QoQ & 7% YoY) of which Product Biz. stood at Rs 7.5 billion (up 9% YoY) and services biz at Rs 0.6 billion (down 12% YoY). Order to revenue coverage now at 100%.

Post dismal show in Q1, we have scaled down our FY25/FY26E earnings estimate by 19%/11% but still remain cautiously optimistic given-

1. healthy order book,

2. AMC scale-up opportunity (20% client due for repricing),

3. strong product potential and

4. compelling valuations.

Consequently, we maintain ‘Buy’ rating with DCF-based target price of Rs 1,540, which implies PER of 17 times on FY26E earnings.

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