Quick Heal Technologies Ltd: Don't loose the Faith So Quick-3rd Part-Results update

In my previous posts on Quick Heal (For Earlier posts, Click here and here) I was expecting it to make a recovery in its business after recent headwinds in the economy….and it has delivered Quick. Quick heal has given good set of numbers in Sep-17 quarter results. I just want to highlight some of the glaring factors:

1.      Topline is flat at 105 vs 106 cr. But it is commendable keeping in view the recent headwinds in the economy due to GST/Demoney, Quick heal revamping its distribution channels, strong competitions as competitors have also upped the ante for marketing and distribution. This flat will look elevated if you compare it with the HIGH market expectations of de-growth. For reasons related to the “Indian-ness” of QH, market had literally thrown it into the dump.

2.     Overall user base witnessed good growth especially enterprise segment which I feel will see high growth in the future. Enterprise segment now has 21% share in the total revenue as compared to 16% last year. This quarter revenue growth in the enterprise segment is 27% while retail segment has de-grown by 7%. However this fall in retail revenues is mainly due to higher demand for low value products as figure of number of retail licenses sold this quarter have increased to 20.26 lac as compared to 19.62 lac last year.

3.     In spite of “visible” flat revenues it has still managed to report higher PBIT figure of 59 cr Vs 55 cr last year. Again this is significant as this was not expected.  I think its profits are impacted due to high focus and expenditure on developing distribution channel to penetrate the tier-2&3 cities.

Distributors and physical distribution reach still is one of the most significant winning factor even when people take “Internet/E-commerce” as a panacea for everything. Even providers of cloud have realized the role of distributors and Our Redington India and global giant Ingram Micro are big players in the distribution of cloud products.

4.      Working capital management has improved big time. QH has managed to bring down the debtors from 95 cr in Mar-17 to 61 cr. This has resulted in the improvement in working capital days from 48 last year to 34 now further improving cash flows.

5.   Now coming to one of the most overlooked fact. QH has around 420 cr in investments and cash in books which is around 30% of the current market value of 1470 cr!! Market has decided to blindfold itself with the “Indian-ness” of QH and ignored the most basic valued factors of a good stock. If we leave this 420 cr out along with related interest income then it means that QH is available at a market value of 1000 cr and its PE will touch 18-20 which is very cheap.

Also this high cash means QH can use this for acquisitions in high tech fields and I have no doubt that very soon we’ll see something big like this coming out.

6.   QH cyber security products have protection from ransom ware and recently when globe was hit by “Wannacry” ransom-ware, No QH client was affected by Ransom-ware. But People raise questions about the technical expertise of QH.  I have explained in my earlier post about the collaboration of QH with Cert-in (Ministry of Electronics and Information Technology) for providing free services for the removal of Botnet in India. But what does it mean?

Why Indian Govt has decided to choose QH for the task if there are so many highly advanced global cyber security firms operating in India especially when most of them are already providing their products FREE? I have seen many people questioning the idea of paying a price for a cyber-security product when these are available free.

Then why QH was chosen? Whether it is because of technical expertise of QH? Whether other high tech free product providers were not willing to provide it free? Or it is because our Govt prefers (or needs) Indian-ness in cyber security? I am leaving it to you people to decide.

7.      I have already shared in earlier posts that Indian Govt will give preference to Indian products. Why?  If we go by the information leaked by Edward Snowden, countries especially US and China are watching, scrutinizing India all the time. In fact India is one of the most watched, and scrutinized nations of the world. Chinese hackers are breaking and stealing information from servers of Indian Govt all the time so easily. And at times when our Govt is dreaming, selling and hoping digital India and smart cities, the threat to our cyber security are serious.

Quick heal was advised recently around 180 and it closed today at 208, up 6%. But it is still way cheap at PE of 20. Promoters have not sold a single share in the IPO, not afterwards…it is investing heavily on brand building…more than any other brand. Better to pick it now before it is too late to HEAL.

(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) 

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