by Welcome back to Traders Ideology, In today’s article, we are going to do a fundamental analysis of Latent View Analytics. Nowadays all those fancy loss-making tech-based IPO’s launching at billions of dollars of valuation we have a relatively small company IPO that is highly profitable and the company is latent view analytics.
This company is among the leading pure-play data analytics services companies in India. We’ll quickly look at the company’s business, its promoters, competition, key risk, financials, and then the IPO details along with valuations. Finally, we will decide if this IPO is worth investing in or not.
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Introduction
- Established in 2006 latent views among the leading pure-play data analytics services companies in India.
- The latent view has expertise on the entire value chain of data analytics from data analytics consulting to business analytics and insight advanced predictive analytics data engineering and digital solutions.
- The entire idea behind this data analytics is to churn data and generate insight that drives business strategies and decisions.
- Latent view provides services across industries including your technology banking and finance retail manufacturing and so on.
- The company has clients across the world with 92% of business coming from the USA.
Fundamental Analysis of Latent View Analytics
Fundamental Analysis of Latent View Analytics are as follows:
Business Model
Let us try to understand the business of the company latent view has got four business division.
Consulting Services
First Division is consulting services. Consulting Services involve understanding your relevant business trends, challenges, and opportunities and preparing an entire roadmap of data analytics initiative that addresses them. So this is the first step of any business to create a roadmap for analytics implementation.
Data engineering
The second division is data engineering. Once the roadmap is done, data engineering comes into the picture that basically involves the entire data architecture including your design and development that set the foundation for genetic insights from the data.
Business analytics
The third division is business analytics. Once the data engineering creates the technical foundation, business analytics comes into the picture that delivers analysis and insights for clients to make more accurate timing, and impactful decisions.
Digital Solution
The fourth division is the digital solution. So the company also develops digital solutions to automate business processes, then predict trends, and generate actionable insights. These digital solutions are reasonable frameworks built on algorithms that use AI and ML along with big data.
Now, if you are not from an IT background, it might be difficult to understand the business of the company. So let me give you a simple use case that would help you relate to the kind of work the company does. For example, many of you would be using your e-commerce platform for shopping.
Once you search for any item or make a purchase, you can see the recommendation for related products or products that are purchased together.
This is a part of data analytics, where the e-commerce companies collect your shopping data point and generate insights to share recommendations.
Although this is just one example and there are 1000s of use cases of data analytics, I hope now understand data analytics implementation in simple terms.
Just to give you an idea of its client, Latent View has worked with over 30+ fortune 500 companies in the last 3 years including the likes of Uber, Adobe, 7-Eleven.
Latent View services fall into 5 major enterprise functions:
- Financial risk analytics – Where the goal is to increase cash flow and profitability.
- Customer analytics – Where the goal is to leverage the customer data to understand customer preference and potentially use your cross-selling and upselling opportunity.
- Marketing analytics to gauge the marketing campaign effectiveness and create a personalized marketing campaign.
- Supply chain analytics to improve inventory management, network optimization, etc.
- HR analytics that includes talent acquisition, performance, training, and retention.
Latent View has been recognized by leading agencies among leaders in analytics. For example, Forrester included Latent View as a strong performer in customer analytic services in 2017 and 2019.
It has been awarded analytics Company of the Year by Frost and Sullivan in 2015 and 2017 and has been recognized by delight in the list of tech fast 50 in 2009, and 2012 to 2017.
Latent View is a relatively small company with 729 employees as of 30th, June 2021. It has 5 subsidiaries in USA, UK, Germany, Netherlands, and Singapore.
Promoter and Leadership
- If we look at the promoters of Latent View Mr. Venkat Vishwanathan is the Founder & Chairman of the company, he has done engineering from IIT Madras and MBA from IIM Calcutta.
- Latent View CEO is Rajan Sethuraman, he has done his engineering from BITS Pilani and MBA from IIM Calcutta.
- Latent View another co-founder is Pramad Jandhyala, and she is an alumnus of BITS Pilani and IIM Calcutta, I had a look at the leadership of Latent view and all leaders have a very strong pedigree from top-notch engineering and MBA colleges along with relevant experience in the industry.
- The promoter and leadership of the company are looking very strong.
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Competitors & Key risks
- If you look at the competitors, Latent view has strong competition from all the IT companies in India as every IT company is now focusing on this new-age digital solution including data analytics.
- The competition is from companies like your TCS, Infosys, HCl, Wipro, Accenture, Capgemini, Mindtree, L&T Infotech, Persistent system, Happiest mind, and so on.
- These are IT giants with a better brand name, strong financials, strong relationships with clients, and a bigger sales team.
- In addition, there are other pure-play analytics companies based out of India, as well as outside like your Mu Sigma, Fractal analytics, Tiger Analytics, Palantir technology, and so on.
- There is strong competition for Latent views. In terms of key risk, one of the risks is that Latent view has a high exposure of more than 50% revenue from the top 5 clients.
- A loss of business from any other top client can impact the business of the company. Moreover, the company has a high dependency on the US market that creates geography risk.
Latent View Analytics Financials
Latent View Analytics Financials are as follows:
Revenue
- If you look at the growth ratio in the last 3 years Latent view revenue has been stagnant in the range of 300 crores in FY 19 It was 288 crore in FY 21 It clocked 306 crores.
Net Profit
- If you look at the profits, the profits have grown at a good rate in March 2019 it was 59.6 crore in March 2020 it touched 72.8 crores, and in March 2021 it clocked 91.4 crores.
- I think one of the reasons for the high profit is due to the increase in operating margin during COVID. As the expenses got reduced.
EBIDTA
- If you look at the EBITDA margin, it has consistently increased in the last 3 years, and it has been well about 20%.
- The latest margin for FY 21 stood at 36.9%.
ROE & RoCE
- If we look at the ROE & RoCE both are well about 20% consistently.
- The latest ROE for FY 21 is 20.89% and RoCE is 23.89%.
Debt to equity ratio
- The company has a debt to equity of 0.05, which is negligible.
- So the financials for the last 3 years are looking good. Although the revenues have not grown much, which is the only concern otherwise the financials are looking good.
- Overall, if you look at the fundamentals and future growth, I would rate it 4-star out of 5.
Future Growth Prospects
- If you look at the future growth, the overall market for data and analytics in FY 20 was $174 billion and is expected to grow at a CAGR of 18% to $333 billion by 2024. Now 18% CAGR growth is a brilliant growth rate.
- On top of that, COVID has accelerated the remote working environment, which is expected to increase the demand for digital services.
- With IT, there are 2 categories. First is your legacy application that is built on old technologies, and another is your latest technology.
- Organizations globally, are reducing their budget on legacy application maintenance and increasing their budget towards new digital transformation including modernizing their infrastructure, using cloud architecture, then remote collaboration, real-time Insight generation, and so on.
- Organizations that have focused on data analytics have created a strong competitive advantage and grown at a much faster rate.
- In the future as the usage of data is growing exponentially Data and Analytics are expected to contribute significantly in the decision making or the organization and organizations are increasing their budgets towards the Data Analytics division.
- Then within data analytics, there is high demand for predictive and prescriptive analytics that uses AI and ML-driven algorithms to generate deep insight to optimize decision making.
- Predictive and prescriptive analytics is all about using data to predict the future with AI and ML-based algorithms, for example, predicting your future sales, weather forecasting, identifying the risk of potential diseases, finding the probability of credit card fraud, etc.
- In order for Latent view to growing in the future, the most important factor would be client acquisition.
- As of FY 21 Latent view has got 45 clients, although it had 58 clients in FY 19. So, the total clients have reduced in last 2 years.
Latent View Analytics IPO Details
- The latent view window is between 10th November to 12th November 2021, its IPO price band is between Rs 190-197, the shares are available at a face value of Rs 1, and the lot size is 76 shares.
- The total investment for one lot would be Rs 14,972, the issue size is Rs 600 crores out of this there is fresh equity of Rs 474 crore and the remaining Rs 126 crore is Offered for Sale where promoters are diluting their stakes.
- Promoters are diluting a very small amount of their shareholding, this 474 Crore raised from the IPO would be used to fund the inorganic growth initiative, fund the working capital requirement of the company, invest in the subsidiaries to augment their capital base, and general corporate expenses.
- In terms of market cap at a price band of Rs 197 company would be valued somewhere around 3800 crores. So, it would be a small-cap company.
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Valuation
- As far as valuation is concerned latent view higher price band is rupees 197 and its FY 21 EPS after equity dilution would be around 5.25 rupees. Hence, its PE ratio would be around 37.
- Considering the overall bright growth potential in the data analytic space, I think that a PE of 37 is very reasonable. So on valuation, I would rate it 4-stars out of 5.
Conclusion
- Overall if you conclude Latent View Analytics is a leading pure-play data analytic services company in India.
- Data Analytics is one of the fastest-growing fields in the IT sector and every organization is implementing data analytics to generate insights for decision making.
- Due to the explosion of data in the last few years, there is more and more demand for data analytics to generate insights out of data and this trend would continue in the future.
- The company has experienced leadership with an excellent pedigree. The company has strong financials with high profitability and negligible.
- Although there’s very strong competition in the data analytics division. Overall, Latent View fundamentally strong company.
- In terms of valuation at a PE ratio of 37 Latent View is looking reasonably valued.
- I think that this company can create wealth for its shareholder in the future and it is worth applying for the IPO for long-term wealth creation.
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