Updated: Jun 9
Company Name – Latent View Analytics Limited (Latent View)
Current Share Price – INR 390 (June 3, 2022)
Market Cap – INR 7,818 cr
[Updated for Q4FY22/FY22 results]
1. What is interesting about the stock?
Data is the new Oil. It is true in this age as we are guzzling data. I saw my home data consumption in a month – it was more than 900 GB. Yes, we have been streaming a lot. A LOT!! We have come a long way from Kilo Byte data (1,000) in computers with dial-up networks to Giga Byte data (1,000,000,000) with broadband connections. With so much data produced and consumed, it needs to be constantly analyzed to make it personalized or relevant for each of us.
How does Netflix recommend shows of our choice to keep us binging? How do Facebook and Instagram keep us hooked on their platforms? Answer – Data Analytics.
Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital.
Aaron Levenstein, Business Professor at Baruch College
When analyzing data, companies need to be careful with statistics as they can both help and hinder growth. Data can tease us with interesting but superficial insights. However, companies can’t afford to stop analysis prematurely at just symptoms when the root cause of a problem remains at large.
The data analytics business opportunity is similar to the IT opportunity in the late 1990s or early 2000s which led to the emergence of giants like TCS, Infosys, and Wipro. India has a vast engineering talent base with excellent mathematical skills in a low-cost structure – perfect for capturing the opportunity.
Latent View came out with an IPO in November 2021 and got a blockbuster response with more than 325 times oversubscription. Only a few lucky retail investors would have got allocation.
Latent View is a pure-play data analytics company. Its expertise includes customer profiling, targeted marketing, supply chain management, finance and risk management, and HR functions.
The Company provides services ranging from business analytics and insights, data engineering, digital solutions, and data and analytics consulting. It engages and provides services to blue-chip companies in technology (about 66% of FY22 revenue), industrials (13%), consumer packaged goods & retail (15%), and BFSI (6%) industries. It derives around 95% of its revenues from the US. Key clients include Adobe, Uber, and 7-Eleven.
The pure-play analytics market is highly fragmented. The trend in the industry indicates that mid-sized and large-sized multi-service providers are adding niche analytics capabilities through acquisitions of small pure-play analytics service providers. Key players in India are Mu Sigma and Fractal Analytics which are both funded by private equity funds.
Global Data Analytics market is currently at USD 174 billion, comprising 6% of the global IT spend, and is expected to grow at 18% CAGR over CY20-24 to reach USD 332 billion.
Relationship with blue-chip clients like Adobe and Uber
Industry tailwinds with an increase in digital investment by companies across sectors
Strong management team
Intense competition with a lot of start-ups in the analytics space
Shortage and therefore, intense competition for high-quality talent
Client concentration with top 5 clients contributing around 55% of revenue. However, the clients are sticky
Slow organic revenue growth – driving the company towards inorganic growth
2. Key Historical Financials
Company delivered good revenue growth in FY22 after a subdued FY21
EBITDA margin came down from 34% in FY21 to 30% in FY22
Net Profit growth in FY22 was augmented by other income (from cash balance)
Latent View's revenue jumped 48% in Q4FY22 on a YoY basis with EBITDA margins of ~31%
ROE/ROCE have down from 23%/27% in FY21 to 18%/17% due to surplus cash in the books
3. What is my view on company valuation?
Company share price zoomed around 150% on a listing day. Bumper!! The stock appreciated further post listing. However, the stock price has been under pressure recently correcting ~35% since Jan 2022.
Latent View trades at a P/E (TTM) multiple of ~70x vs Infosys multiple of 30x. Long term average P/E (TTM) multiple of Infosys is around 15-20x so the current valuation is not justified even for the higher expected growth (20-25%).
Key competitors of the company are Mu Sigma and Fractal Analytics. Both were valued around a Price to Revenue multiple of 10-12x in the last round of funding vs a company valuation of around 20x.
Company is very richly valued on any parameter and may face a situation similar to Infosys post dot com crash where it took 6 years for investors to recover invested capital – time correction in the stock.
Institutional shareholding (FII and DII) has fallen since December 2021 - it is not a good sign.
4. What are the risks to the investment analysis?
Key risks to the analysis are:
FOMO and lack of options (until a competitor is listed) may drive the price higher in the short/medium term
Acquisition by a large player at a high valuation – for entry into the space or to complement the current product portfolio
Block-buster product development by the company
About the Author
I have over 15 years of experience in venture capital, private equity, and investment banking in India and the Middle East across a wide variety of sectors. I was last working with Majid Al Futtaim Holding (MAF), a leading conglomerate in the Middle East, to look after investments, M&A, and venture capital. I have prior experience in India with Tata Capital (Private Equity), Merrill Lynch (Investment Banking or IB), and Ambit Corporate Finance (IB). I bring the long-term ownership mindset to the analysis.
I graduated from the MBA program of the Indian Institute of Management Lucknow (2005) after completing the Bachelor of Technology program at the Indian Institute of Technology, Kharagpur (2002).
I am an Insignificant Investor in the public market and co-founder of SocInvest.
I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI registered advisor. This article is purely for educational purposes and not to be construed as investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.