Friday, 8 September 2017

Quick Heal Technologies Ltd: Don't loose the Faith So Quick

Quick heal is facing tough times ever since it has made its debut in the stock market. There are doubts over its capability to withstand the competition from MNC brands. But I am still positive on the company and its inherent strength to offer high tech security solutions catering to the demands and needs of Indian market.

 I know so many people who think that Woodland shoe is an MNC brand and it certainly impacts their buying decision. So many people take Van Heusen as a foreign brand when in fact it belongs to our Aditya Birla group. People doubt Quick heal as they know that it is an indian player otherwise what it has achieved as a brand among the giant IT commodity players like TCS/Infosys is certainly  a great achievement. We have never heard about an Indian Brand in technology...we see Microsoft, Java, Oracle, Adobe, Norton, Kaspersky everywhere and we hardly know what our IT giants (Infosys/TCS/Wipro) do. Indianness is invisible in IT for us in branded products although the fact is that most of the Global IT giants are headed by Indians.

So there shouldn't be any doubt on the is only about the intent to choose the difficult path of brand and product building which is chosen by Quick Heal backed by strong technical capabilities. Quick heal has already covered some genuine distance, it is not some fairy-tale startup. Quick heal is a serious profit making organization, NP of around 50-60 cr on revenues of around 300 cr with strong in house R&D capabilities.

Our world is changing fast and in a sense we are moving towards non-material sort of world. Physical wars among big nations are not happening and chances are even lesser. Modern wars comprise currency wars and Cyber wars. We are moving more and more towards automation...most of the civil services will be fully automated in few and IOT will bring radical changes to how Govt provides services. So any security breach will be serious...catastrophic. General public is doing everything online...our bank accounts/passwords are online. My enemy doesn't need to rob me personally/physically...he can do the same thousands KM away without even touching anything. So risks here are very serious and can't be left uncovered. We'll see huge demand for security products when people will realize the vulnerability of our online life. So i have no doubt about the future scale of operation.

Here i remember the hacking attack on dating site Ashley Madison which threatened to kill the life of its members and the business. Hackers threatened to public the names of its members claimed to be some 38 million. People panicked and small number of suicides were reported, a priest in Louisiana among them. So i feel threat is very potent and deadly for people to ignore it or taking it lightly. In fact people will only become more aware in the future. Current stage is just the tip of possible iceberg.

Stock markets are never perfect and it is good that they are like that as otherwise there will e nothing for us to find hidden deep value proposition. Like here, on one hand our market is finding it difficult to assign high valuation to Quick heal but still it is finding great value on other security company which is more like a Labour supplier involving relatively much lower technical expertise. I am talking about Security and Intelligence services India Ltd (SIS Ltd) which is trading at a PE of around 60 but Quick heal which is having much higher technical expertise with much stronger brand recall is trading at a PE of around 20 ( If we keep out the impact of GST on June-17 results). QH is also having around 375 cr in investments and cash!!

Its June-17 Qtr results were impacted by de-stocking by dealers ahead of GST implementation but still its enterprise business grew by almost 20% even in this tough environment which shows that Quick heal is on the right path as far as picking Enterprise business. For past 2-3 quarters, its performance is impacted by industry level macro issues like Demonetization and GST but i think the growth will be back very soon.

 India has big number of SME’s who earlier never bothered about the cyber security. But off late, SME sector was also getting aware of Security threats and spending was growing. SME got involved as earlier the threat was only to information (For SME) and their information was never valuable for hackers but as more and more SME was turning towards online banking etc....their threats were there will be high growth in SME and large enterprises sector in India.

Paid Security products vs Free products

Some people opine that general public will be reluctant to pay for the security software products as many are available free. Although i can't claim to understand cyber security better than an IT professional but there are certain things which i feel will pave the growth of paid cyber security products. First thing i always feel there are no free lunches. The free games we play, free videos we play...all have either embedded with the device maker/operating system maker or they need intermediate ads or else the free product is mediocre. 

When you think that you have found a free antivirus product then the real fact is that “You” have become a product for these companies. They will bomber your system with all type of nonsensical stuff like free toolbar, search engine etc. and in doing so they make money of you…so here you are the product. Free antivirus companies are just like other companies…they need profits to sustain themselves. So free antivirus products bundle all type of junk like adware, spyware, toolbars, tracking and other cheap stuff to make money from you. They will alter your search engine to make you click ads, some install terrible Ask toolbar which is nothing short of a nightmare, harvesting and selling your browsing data and other information. Even the reputed free antivirus companies like Avanst, Avira, AVG, Comodo are doing this. These free products market their other premium programs, upgraded paid versions of their free antivirus program to make people to pay for this and in the process they make big money.

Cyber security is a very complex segment which requires huge resources (most of which are used immediately i.e salary) which needs commercial success of the product. Updating of data base for viruses is very costly and it is a continuous exercise.

Besides free software lacks so many things which are must for a complete security software like:

1) Don’t provide for online backup in case of any emergency
2) Encryption of files in case of theft.
3) Internet security
4) Spam filtering
5) Quick updation of virus definitions and library
6) Ads area big distraction and consume resources
7) Most importantly, support system like onsite installation and telephonic support is never there which for a small business is a make or break decision. Quick support in case of a crisis will play the deciding factor in saving the business; even for a common layman. There are so many cases where cyber-crime resulted in the failure of a thriving business like recent attack on Sony which almost killed the giant.

Cyber wars: Indigenous “Make in India” products are key for India

Cyber warfare is the future of wars between nations. For long, China has attacked India’s cyber space and networks. The numbers of such attacks are rising continuously around 50000 a year. In 2010, Ministry of Defence computers were hacked pointing serious weakness of our systems. This year in May-June, hackers attacked the systems of Indian Banks and stole the data of around 3 million debit cards and the worst part was that Indian authorities couldn’t even establish the origin of the attack, the identity of the hackers, or how the securely self-destructing malware was created.

Israel is the global giant in cyber security space and US companies are the biggest investors in the Israeli cyber security start-ups. In Israel citizens are supposed to give their services in Army in young age. Israeli Citizens are one of the most patriotic nations of the world and their citizens are ready to serve and die for the country at any time. Time spent by young ones in the army makes them capable to understand the nitty-gritty of security systems and this is the reason for their success in Cyber security. USA and Israel are close ally in cyber war fare but both have maintained silence on their actual capabilities to originate a serious cyber attack and their expertise in defending such attacks.

Such ambiguity about the strength of cyber system puts your attackers in doubt as they can only guess your cyber technical expertise which puts them in back foot. Both USA and Israel created one of the most sophisticated Stuxnet Worm to attack on Iran’s nuclear systems in 2010 although they both never acknowledged the same. Stuxnet is regarded as one of the most sophisticated malware ever discovered. So I do not know whether India should adopt such policy to keep silence about their expertise but if we go by the recent attacks on our Defence systems it is clear that we are still have some distance to cover. Israel is also a close ally of India and I see both India and Israel strengthening their cyber systems with mutual assistance. India really have great IT skilled professionals who if given the chance can prove their true worth in developing the cyber security systems for India.

Here, I want to stress that Indian Govt is going to prefer Indian made cyber security products as it ensures that the source code that runs the programme and the machinery do not grant access to foreign firms or governments. So I think local firms like Quick heal can tap this huge opportunity along with the fact that they have already demonstrated their expertise and acumen in designing and developing security systems.

Regarding Quick Heal vs MNC players, i think Quick heal has everything to challenge them because this is what it has been doing so for a fairly lengthy period of time. It is having more than 30% share of retail market. MNC IT players are overhyped...they are good but Indians are not less. The only thing is the risk taking capability as focus on being a branded product player is a big risk which requires huge resources for branding and distribution. In fact the main aim for  Quick heal going for IPO was to get money for brand promotion and we can see that Quick Heal is now visible across Media which i feel is a great attempt.

Actually R&D and Branding is a different business games which i feel Indian investors don't understand at all. We always fail to value a R&D heavy company; we try to figure out the earnings when R&D is a long term game although with unimaginable growth prospectus. Same is for a Branded product company. Here Quick heal is trying both which is new first for Indian business. Giants like Infosys, TCS have never had the courage for going for product based future...timid...although they have the huge resources. But they failed terribly in understanding the future of IT...which was migrating from quick service product to value added products like Artificial intelligence. 

As i have explained in many blog posts R&D and Branding is not for chicken hearted; it is for brave is journey to the unknown. Quick Heal has chosen this difficult path although it is very strong in R&D and developed some ground breaking solution in security.

Also i think Mobile security will see huge growth from here on. Recent attack on Android phones will make people realize the threat. 

I have great faith in Quick Heal...and i feel there are high chances of it to survive its quest for the unknown. Good buy at current levels of 190.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post)


  1. Sir your View on LEEL Electricals pls. its PEER DIXON IS getting listed at 40PE. LEEL available at 12PE. SHARE YOUR VIEW PLS.

    1. Hi Dear, I have never studied LEEL so not in a position to comment on its future. I am not sure what led to the management to sell their B2C business as earlier they were very bullish on that because i think Indian AC/TV kit manufacturers require considerable tweaking in their business model as at present Indian AC/TV kit producers are more like assemblers.

      Most of them import the main components of the Kits from places like china and so they don’t do much value addition after that. Like for LEEL, raw material expenditure in foreign currency was 1000 cr out of total raw material cost of 1700 cr against turnover of 2400 cr. PBIT was 235 cr which is just 10% of turnover which is mainly due to the fact that they do not add much value. If you see the cooling kits of your AC’s you will not find the brand name of the Indian companies because they are not manufacturing them. That does why I feel in order to become a truly B2B company, Indian manufacturers have to take more things in their hands.

      LEEL is in the same position where Piramal Enterprises was in 2011 after selling their generic pharma business to Abbot for 17000 cr and after that Piramal has created huge value for shareholders. But I think LEEL management is good and they are trying to up the value chain by paying all the debt. I don’t have much info about their future plans so my views are constrained due to this.