Hidden Treasures and e-commerce Play : Intrasoft Technologies Ltd

As per new regulations of SEBI, it seems that only SEBI qualified research analyst can
express buy , sell , hold , accumulate etc. recommendation about a stock through any public
media. SEBI has given six months time(May2015) to comply with it for existing research analyst
.I am not SEBI qualified research analyst but I am aspire to become research analyst in next 3-5
years .So , purpose of this blog learn and put analysis of company with whatever I know and get
input from SEBI qualified research analysts . I am sure this learning method will help me to
become SEBI qualified research analyst one day.I think this rule is quite appropriate since how
can person like me who is still learning give any opinion of buy , sell particular stock.
Today, I would like to get input on "Intrasoft Technologies Ltd" . Since you are
experience research analyst you will say what is special here . They have www.123greetings.com
which offer greeting services free of cost, generate revenue from add services and as per current
market cap trading fairly .
My interest in this counter is not generated because of www.123greetings.com but
something else . Look at the following screen shot and let me know if a e-commerce company in
USA growing with these figures wouldn't attract your interest . How much will you pay for this
company ?

Source : http://www.inc.com/profile/123stores

This is nothing but http://123stores.com/ e-commerce division of 123greetings.com USA which

is wholly own subsidiary of "Intrasoft Technologies Ltd" .
Please look into following links for highlight of last quarter . We cannot compare data directly
with Snapdeal and Flipkart . It is growing fast with small base , same time present tremendous
opportunity for me to participate in growth of e-commerce since very few e-commerce
companies are listed like Info Edge , Just Dial etc. Those are available at high valuations and
already discovered by market .
http://www.itlindia.com/investor-relations/press-releases/Intrasoft-Technologies-LimitedReports-128-Growth-In-Revenues-For-Q2-FY-2015
During the quarter they entered the US Internet Retailer Top 500 list at 499 from last years more
than 650.
I still need to analysis business model but as per my initial analysis it generate revenue by two
ways .
1. Partnership with other top USA marketplaces (shop in a shop format) like Amazon, Ebay
.We can describe in another words as marketplaces inside marketplaces .If it get commission
from register vendors and not hold actual inventory . I do see quite low inventory in balance
sheet .
2. Direct sale from http://123stores.com/ . I believe this is small portion at the moment since as
per Alexa only around 5000 unique visitor visit daily this site but that count is also growing fast .
http://123stores.com.alexaview.com/
Open question to management .
1.

What is mix of above mention channels ?

2.

You mentioned "Our growth in the E-commerce business can be directly attributable to
the strength of our proprietary enterprise software" . What are these strengths ?

I do also see good growth potential in http://www.123invitations.com/ but they need to make UI
impressive and add few more value added features.
123Stores, Inc, reported record sales over the long holiday weekend from Thanksgiving Day
through Cyber Monday of over $2 million, a 243% percent increase over last year. The Company
sold one item every 7 seconds on Cyber Monday.
Please refer http://www.webwire.com/ViewPressRel.asp?aId=193500#.VIhzAdKUf3Q
Shareholding pattern:

Kotak Mahindra Investments Ltd was holding around 6% share but recently they have release
around 3% share . Not sure who has pledge those share since no promoter shareholding was
pledge may be some HUF . As you can see retail investor holding is not even 10% in this stock .
All the shares are in strong hands .
"Intel Capital (Mauritius) Limited" also hold around 12% of "Intrasoft Technologies Ltd" which
gives confidence but I believe it is may be just strategic investment by Intel .
Corporate Governance :
I am still learning to scan corporate Governance level . I have not found any red flag as such .
Just need to dig more on Kotak Mahindra Investments Ltd's release of shares . I saw around 465
crores of cash in balance sheet of 2009-10 but next year was reduce to just 3 crores . I was at my
wits end to figure out where they have spent so much money or spinned off but when I check
annual report of 2010 and 2011 then I realized it was IPO money company had received(before
financial year ending) due to over subscription and returned it next month(year) . So no issues on
this front .
"Intrasoft Technologies Ltd" also put audited annual reports of it subsidiaries on their website
that is good move .http://www.itlindia.com/investors/financials.html

Valuation :
e-commerce companies are getting valuation based on sales instead of PE . The range stars
from 3x and goes to 7-8x . "Intrasoft Technologies Ltd" has sales of around 220 crores in last
trailing 4 quarters and expected to finish this financial year with more that 280 cr of revenue . It
has only 75 crores of market cap right now .
E-commerce companies need lot of time to start making money so we should concentrate on top
line instead of bottom line
Alibaba for the first 10 years continued to make a loss, it was only in last three years that they
started making money and this year it was several billion dollars of net income and it is growing
very quickly. They were not in a rush to start making money; rather they created a robust
platform, good services and good number of merchants on the platform. As per them This is still
the investment stage and not the harvesting stage.
Apart from top line growth and debtor turnover ratio nothing looks good for this company but
that is the case with most of ecommerce companies when they are in investment stage .

Future Plan :
They are going start using platform of Alibaba similar to Amazon ."Intrasoft Technologies
Ltd" is also planning to launch same platform in Canada which will again help top line to grow
and obliviously they will target India as well . If that happen then top line growth will again get
some boost . Management has also indicated that "We continue to focus on growing the business
and re-invest the cash surpluss back into the business. As a result, in the short term, the bottom
line may not correspond to the topline growth but we are confident that once economies have
reached, it will yield even greater financial results." They can easily leverage huge database of
customer base of www.123greetings.com to promote new e-commerce website.
Conclusion :
It is not Flipkart or snapdeal , business model may not be same but for me it is Flikart or
Snapdeal of poor man. If it achieves even 3-4% of flipkart in next 4-5 years then that will
sufficient to create some wealth.I am sure If I dig more then I will get few more positive and
negative but at current market price of 52 market cap of company is only around 75 crores ,
growing fast, it holds cash around 8.33 crores and dividend yield is around 2% . I believe at this
price I am not going to loss much but if not all the things but most things click for this company
then sky is the limit who knows. I would like to get input from qualified research analyst on my
analysis made for myself .

Conclusion : Intrasoft Technologies Ltd (CMP 45)

I had posted on Intrasoft Technologies Ltd here

Now posting follow up and conclusion .
Retail e-commerce market potentials :
The Indian e-commerce(all including retail and travel) market is estimated at $11 billion. It is
expected to stand at $20 billion by 2015, a compounded annual growth rate (CAGR) of 37 per
cent through 2013-15, according to a recent report by Motilal Oswal Securities. The e-retail
segment would be the biggest growth driver (with an expected CAGR of 60 per cent), increasing
from $1.7 billion in 2013 to $7 billion in 2016, it added .
Pramod Kumar, managing director, Barclays Capital India, said, The online retailing segment in
India today accounts for a mere 0.5 per cent, compared with 8-13 per cent in developed
countries. The sector is expected to grow sevenfold to $30 billion by 2020 and the number of eshoppers could grow from 20 million to about 90 million. Clearly, India is a massive ecommerce opportunity, which cannot be ignored.
Source : http://www.business-standard.com/article/finance/softbank-turns-largest-investor-forindian-e-commerce-cos-114121700329_1.html
Today (18 Dec), Qatar fund invests $150 million in Flipkart . QIA is the new investor buying
into Flipkart, valued at around $11 billion (more than Rs 68200 crores at conversion rate of 62) ,
taking it among the top five privately held technology startups in the world.
Source : http://timesofindia.indiatimes.com/business/international-business/Qatar-fund-invests150-million-in-Flipkart/articleshow/45556408.cms
I know it it is at crazy valuations but Early investors are making huge money . It may follow
"greatest fool theory" . However , They are not investing because of charity , They might have
their own reasoning. All the retail e-commerce players are making huge losses but It doesn't
matter for them since they are concentrating on future and trying to achieve economical scale
first like Alibaba did .
SoftBanks $20-million investment in Chinese e-commerce group Alibaba in 2000 is now worth
$86 billion, following the Chinese company floating an initial public offering in the US. That is
very very huge return . They had patience in early stage when Alibaba was making losses and
that time Alibaba was not listed . Mr market does not give good valuation to companies which
are under investment stage unless promoter has proven track records . Same times it throws
opportunity to buy companies whose valuation are cheap , past is not good but future is bright .
Retail e-commerce is such huge opportunity that even companies with decent management will
also do reasonably good .
Conclusion :
By seeing comments , email and Market Price , I feel most of them suggested to ignore Intrasoft
due to it past performance . Most of them also not realizing how big is retail e-commerce

opportunity . So , I have decided to invest 2.5 percentage of my portfolio (May be risky bet)
regardless of all concerns like deprecation write off, past track records .I will allocate more
money based on future fundamental changes . I am sure if company does not do any fraud and
promoters have good intention for minority shareholder then I believe I will make some return in
this if I can wait for long regardless of noise.Same time I will keep watch on fundamental
changes and my assumptions that they will launch http://123stores.com in India. If they sell other
business (websites) and just concentrate on future that is http://123stores.com (USA, Canada,
India and other countries) then that will be added advantage. My logic is simple If retail ecommerce market grows like expected and stabilized(start making money) then not only Flipkart
and Snapdeal is going to make money there will be few small players in retail e-commerce will
also make money . Indian consumers are going to be loyal to discount and value for money and
not only to big brands like FlipKart or SnapDeal . Flipkart and Snapdeal will be get listed in
future once they start making money to give exit to early investors. But we don't have any other
opportunity right now in listed space of retail e-commerce apart from Intrasoft technologies.
Right now, I am looking like contrarian fool and alone investor .
We are shopping from USA based companies like Amazon and eBay here in India . If any of
your friends and relative is in USA then please request them to buy any low price item from
http://123stores.com/ for experience . Please don't buy anything which is not needed .
If you are interested in reading multiple blogs from other blogger then please open your account
on http://www.feedly.com/ which I find good to read and track all blogs .
P.S. (on 25 Dec 2014)
Magic of Compounding : Why Venture Capitalist are investing in loss making companies ?
Because , they are have their own assumptions and firmly believe in power of Compounding . I
tried number crunching and Magic of Compounding on Intrasoft and numbers were unbelievable
. So, I initially thought I am not going put these numbers since I will be look stupid and I did
similar exercise for Indsil but those variable never turned positive so I sold recently my entire
holding in Indsil . I have changed my style of investing from 2013 and moved towards growth . I
feel little better investor If I see my portfolio, most of those stocks I have not disclosed here ,
frankly most of successful stock ideas are borrowed one from others (No intention to return them
back:)) . Nevertheless , I collected some courage and put the magic of compounding on Intrasoft
even though I will look stupid but I am not alone some Venture Capitalist are also looking
similar:) .
Intrasoft Technologies's 123Stores can earn revenue/profit in future from Transaction Fees ,
payment Gateway fees(net off paying to actual gateway charges) , Vendor Subscription monthly
fees , Advertising (like AdWords ,AdSense) , Other Affiliate marketing, From Channel Partner
( sending email to their register customers of channel partner like insurance company) and
shipping charges (net off paying to courier companies).
Whenever , these e-commerce companies will chase profit instead of GMV (GROSS
MERCHANDISE VALUE) then they can earn profit margin of 7-12% (not more than that) on
GMV .

Let's assume Intrasoft Technologies's 123Stores will earn only 5% (worst case scenario) net
profit margin once e-commerce stabilized and concentrating on profit .
123Stores reported record sales over the long holiday weekend from Thanksgiving Day through
Cyber Monday of over $2 million, a 243% percent increase over last year .I can trust number of
123Stores because they are showing audited numbers with annual report of subsidiary in USA.
These numbers are audited by ZBS Group, LLP . New York .Click here
If they start their operations in Canada and India then this growth may be increase further but
assume for margin of safety that they just grows by 55% against current 200% plus
compounding .
So there 4 assumption in the my following calculation
1. I can hold it from 4 year to 10 years provided that I do not smell something wrong/fraud .
2. NP margin of only 5% of sales /GMV
3. Sales /GMV growth of 55% compounding for first 4 year then 30% for next 3 years then 15%
for 8 to 10th years period.
4. Equity dilutions of 20% for 4 years period , 30% for 7 years and 40% 10 years period.
Now , lets consider 3 periods when they will profitable either in 4 years or 7 years or 10 years . I
can hold these share long term at least for this period as long as my assumptions on track . I will
have to take call if assumptions get off-track depend on circumstances .
This year they will show at least 270 crores of sales ( last 4 trailing quarters already 220 crores )
we will start from that .

Try : http://www.moneycontrol.com/personal-finance/tools/magic-of-compounding-tool.html

4 Years

7 years

10 years

GMV/Sales

1558 (55%
compounding)

3422 (30%
compounding from 5th
year to 7th year)

5204(15%
compounding from 8th
year to 10th year)

Profit@5%

77.9

171.1

260.2

Mcap @ 10 PE

779

1711

2600

(Cr.)
Share price @
20% Equity
Dilution

Rs 423

Share price @
30% Equity
Dilution

813

Share price @
40% Equity
Dilution

1059

Mcap @ 15 PE
(Cr.)

1168.5

Share price @
20% Equity
Dilution (15 PE)

634.5

Share price @
30% Equity
Dilution (15 PE)
Share price @
40% Equity
Dilution(15 PE)

2566

3900

1393

1588

Numbers look unbelievable , This stock price for me can be achieve if 4 assumptions remain on
track which I don't think unreasonable either . Is 5% NPM is unreasonable ? Is 55% CAGR in
sales for first 4 years is unreasonable for sun rising e-commerce sector ? Is equity dilutions
unreasonable ? For me , answer is not unreasonable .
Another import point , Intrasoft Technologies Ltd should not be get delisted .
We can get good return in any growing quality stocks but we can get impressive return
/multibagger if we are early investor and market has not discovered potential of that stock .Right
now , so far only Venture Capitalist Intel has invested in it. If Intrasoft Technologies get some
other investors(or even some good stock picker investors/brokerage houses) then It will start
getting valuations based on sales, first 1x then 1.5x like that .Journey has just started let's see
where it take us , hope not backward at least .
If you are interested in reading multiple blogs from bloggers (including stupid like me) then
please open your account on http://www.feedly.com/ which I find good to read and track all the
blogs .

This will be last post for this year . So ,wish you very happy and prosperous new year 2015 . I
hope your compounding m/c for other investments continue with same or higher speed .