LatentView Analytics

Latent potential?

Niche player in high growth data analytics, but financial track record is not exciting

LatentView Analytics is one among the leading pure play data analytics companies in India and has emerged as one of the most trusted partners to several fortune 500 companies in recent years.

The company designs and engineers result-oriented analytics solutions for its clients that enable them to operate more efficiently by predicting outcomes that fuel digital transformation and sustainability. Its expertise in business analytics includes analytics with respect to customer profiling, targeted marketing, supply chain management, finance and risk management, and HR functions.

The company provides services primarily to companies in Technology, CPG and Retail, Industrials and BFSI industries. In FY2021, 63.25% of revenues was contributed by Technology, 17.54% by Industrials, 9.62% by CPG & Retail and the balance 9.59% by BFSI segment. For 3 months ended June 30,2021, 66.81% was contributed by Technology, 13.64% by CPG & Retail, 13.64% by industrials and the balance 5.91% by BFSI segment.

The business of the company can be broadly classified into: Consulting services that involves understanding relevant business trends, challenges, and opportunities and preparing a roadmap of data and analytics initiatives that addresses them; Data engineering that is undertaken to design, architect and implement the data foundation required to undertake analytics; Business analytics that delivers analysis and insights for clients to take more accurate, timely and impactful decisions; and Digital solutions that it develop to automate business processes, predict trends, and generate actionable insights.

The company has emerged as the most trusted partners to several Fortune 500 companies in recent years and has worked with over 30 fortune 500 companies in the last 3 fiscals. Some of the key clients with whom company works include Adobe, Uber Technology and 7-Eleven.

The company begins its engagements with most clients by providing business intelligence and visualization services, which evolve into deeper engagements for advanced analytics and predictive modelling, and mature into providing strategic insights, thought leadership, and business recommendations. The company has also expanded its range of offerings from basic services such as web analytics, activity-tracking reports, survey analytics to social media analytics, big data, cloud architecture and migration, and are currently engaged as a strategic partner to several clients delivering a wide range of end-to-end solutions. Currently the key areas of engagement include search engine analysis, competitor analysis, survey analytics, web and campaign analytics, forecasting, marketing and media mix modelling, purchase brand funnel analysis and social media.

In a world of increasing data availability, the value proposition is shifting from the provision of core data to the generation of analytical insights to inform decision making processes and optimize workflows, across interrelated business activities (Source: Zinnov Report). The company’s end-to-end solutions cover a comprehensive spectrum of use cases across the value chain of its clients’ businesses. These use cases continue to evolve as the company find additional ways to derive insights from data. The company’s customized solutions are a key competitive advantage and allow the company to effectively compete across the entire commercial data and analytics landscape. The company use a consultative approach wherein developers, analysts, and nontechnical users collaborate to make data-driven decisions. These data-driven decisions are often written back into decision systems to be analysed and modelled for improved future understanding and decisions, creating an operational feedback loop. The company prioritises innovation and R&D through multiple initiatives, through a combination of solutions the company design as responses to client requests, as well as proactive efforts to identify marketable solutions. The company carries out client driven innovation through its Service Delivery Excellence (SDE) framework that supports a cycle of continuous improvement through context-based improvement studies, and has set-up ‘IdeaLabs’, a team of dedicated R&D resources, for its ongoing innovation efforts.

The company serves clients across countries in the United States, Europe, and Asia through its subsidiaries in the United States, Netherlands, Germany, United Kingdom and Singapore, and its sales offices in San Jose, London, and Singapore. In the 3 months ended June 30,2021, 94.79% of the revenue was contributed from United States and in FYs 2021, 2020 and 2019, revenue from operations from clients in the United States represented 92.88%, 92.33% and 90.91% of its revenue from operations in such periods, respectively, and revenue from operations from clients in United Kingdom represented 1.85%, 1.78% and 3.75% of its revenue from operations in such periods, respectively. The company plans to increase its presence in Europe.

The company is promoted by AdugudiVishwanathan Venkatraman and PramadwathiJandhyala. AdugudiVishwanathanholds a B.Tech from IIT Madras and a PGDM from IIM Calcutta. He has several years of experience across IT services, credit analysis and business consulting. PramadwathiJandhyala has a B Tech from BITS Pilani and PGDM fro IIM Calcutta. She has several years’ experience across corporate finance and credit ratings.

Objects of the offer

The offer comprises a fresh issue of 2,40,60,914 equity shares at upper price band of Rs 197 and 2,49,47,368 equity shares at lower price band of Rs 190 aggregating up to Rs 474 crore by the company and an offer for sale by selling shareholders AdugudiVishwanathan Venkataraman of up to 30,53,046 equity sharesat the upper price band and of Rs 197 and 31,65,526 equity shares at the lower price band of Rs 190 aggregating Rs 60.15 cr, Gopinath Koteeswaranof up to 11,93,909 equity shares at upper price band of Rs 197 and 12,37,895 equity shares at lower price band of Rs 190 aggregating Rs 23.52 cr , Ramesh Hariharan of up to 17,76,650 equity shares at upper price band of Rs 197 and 18,42,105 equity shares at lower price band of Rs 190aggregating Rs 35.00 cr, Subramanian Ramachandran of up to 1,96,345 equity shares at upper price band of 197 and 2,03,579 equity shares at lower price band of Rs 190 aggregating Rs 3.87 cr, DivyaBalakrishnanof up to 60,406 equity shares at upper price band of Rs 197 and 62,632 equity shares at lower price band of Rs 190 aggregating Rs 1.19cr, Rajkumar Kaliyaperumal of up to 58,274 equity shares at upper price band of Rs 197 and 60,421 equity shares at lower price band of Rs 190 aggregating Rs 1.15 cr, Priya Balakrishnan of up to 37,310 equity shares at upper price band of Rs 197 and 38,684 equity shares at lower price band of Rs 190 aggregating Rs 0.74 cr and Navin Loganathan of up to 20,000 equity shares at upper price band of Rs 197 and 20,737 equity shares at lower price band of Rs 190 aggregating Rs 0.39 cr.

AdugudiVishwanathan Venkatraman pre-issue shareholding was 69.63%, which shall decrease to 59.61% at the upper price band of Rs 197.

Thecompany proposes to utilize the net proceeds of the fresh issue towards funding inorganic growth amounting to Rs 147.90 cr, funding working capital requirements of its material arm LatentViewAnalytics Corp amounting to Rs 82.40 cr and investment in its arm to augment its capital base for future growth amounting to Rs 130.0 cr.

Capital base is being augmented to fund its inorganic growth. The company has started evaluating young start-ups for mergers and acquisition which will drive inorganic growth.

Strengths

India is the top outsourcing destination for analytics, and Indian companies including Multi Service Providers and Pure Play Analytics firms have a share of approximately 40% of the addressed market. The Indian delivery market is estimated to grow at approximately 20% CAGR (2020-2024). Western Europe and USA have a larger concentration of Pure Play Analytics players, who create differentiation through their expertise in niche solutions and products. USA delivery market is expected to grow at approximately 24% CAGR (2020-2024).

LatentViewAnalytics is among the leading pure-play data analytics services companies in India and has emerged as one of the most trusted partners to several Fortune 500 companies in the recent years. It has presence in the top 5 analytics markets in the world with subsidiaries around the world. The pure play analytics companies have grown by 25% to 30%, driven by a focus on large accounts and their ability to provide an in-depth understanding of customer problems.

The company’s portfolio offers a distinctive breadth and depth of capabilities, including descriptive analytics and prescriptive analytics with intuitive and personalized dashboards that can drive monetization by improving sales and marketing efficiency, improving customer experience and operational efficiency. Functional expertise is the foundation of the company’s operations, and combining its functional expertise with business knowledge, expertise in quantitative methods, and data management helps the company provide end-to-end business solutions.

The company brings deep skills, a wide range of capabilities, and relevant experience in helping global leading organisations (including Fortune 500 companies) utilise the power of data and analytics across the spectrum of the business value chain including customer analytics, marketing analytics, supply chain solutions and finance and risk analytics and People/HR analytics.

The company partners with many of the largest enterprises in the world, and has worked with over 30 Fortune 500 companies in the last three Fiscals. The company’s client base is diversified across size, industry, and geography. The company’s client base includes several marquee enterprises engaged in diverse industries, including Adobe, 7-Eleven, Uber Technology. The company provides services primarily to companies in Technology, CPG and Retail, Industrials, and BFSI industries.

The company has held relationships with its top five clients by revenue for FY 2021, for an average of over six years as of 30 June 2021and has evolved from being an analytics provider to a strategic thought leadership partner. Revenue from operations from clients that the company has engaged with for over five years as of June 30, 2021, represented 44.51%, 42.42%, 55.27%, 67.51% and 79.76% of its revenue from operations in the three months ended June 30, 2021, and June 30, 2020, and in FYs 2021, 2020, and 2019, respectively.

Majority of the company’s revenue is generated from long-term agreements. Additionally, the company benefits from operating leverage given the high contribution margins associated with incremental revenue generated from its consulting services. Despite the investments being made to enhance its technology, analytics and data capabilities, the company’s capital requirements remain minimal with capital expenditures representing 0.60%, 1.10% and 0.56%, of its revenues from operations in FYs 2021, 2020, and 2019, respectively. Revenue from operations outside India represented 96.17%, 97.48% and 99.59% of its revenue from operations in Fiscals 2021, 2020 and 2019 respectively. All these factors contribute to strong free cash flow generation, allowing the company financial flexibility to invest in the business and remain margin accretive.

Weaknesses

The company is very small and small companies tend to be affected more by changes in the environment and client dynamics.

Revenue from operations from its top five clients in FY 2021 and in the three months ended June 30, 2021, amounted to Rs165.20 cr and Rs 52.1 cr, respectively, and represented 54.00% and 59.31% of its revenue from operations in such periods, respectively.

The company derives significant portion of its revenues from clients located in the United States and any adverse developments in this market could adversely affect its business. Further, exchange rate fluctuations may adversely affect the company’s profitability as the company earns and expends significant portion in foreign exchange.

The ability of the company to continue to engage with its clients is dependent on the quality of its services and offerings and real or perceived errors, failures or glitches in its offerings could adversely affect the growth prospects.

The business depends on the company’s ability to remain updated with new technologies and continue to develop new digital solutions to address the needs of the clients.

The company faces intense competition in its markets. The markets for data and analytics are very competitive, and the company expect such competition to continue or increase in the future.

Despite being a small company engaged in high growth segment, the company’s sales have remained flat around Rs 300 crore in the last three years.

Valuation

For 3 months ended June 2021, consolidated sales were up by 20.3% to Rs 87.8 crore. OPM rose 109 bps to 30.8% which led to 24.7% increase in operating profit to Rs 27.1 crore.Other income declined by 58.1% to 3.9 crore while interest cost decreased 6.4% to Rs 0.6 crore and depreciation increased 4.5% to Rs 1.8 crore. PBT declined by 0.4% to Rs 28.6 crore. Tax expenses increased by 6.3% to Rs 6.3 crore. Net income stood at 22.3 crore as against net profit of Rs 22.8 crore during the same period last year.

For FY 2021, consolidated sales were down by 1.4% to Rs 305.9 croredue to non-renewal of certain client engagements for a client engaged in the travel and hospitality industry due to Covid related disruptions. OPM rose 828 bps to 34.19% which led to 30% increase in operating profit to Rs 104.6 crore. The company was able to achieve a significant business shift to its offshore centers of excellence in Chennai and Bangalore, thereby achieving a significant margin expansion in FY2021. Other income increased7.8% to 20.8 crore while interest cost decreased 9.9% to Rs 2.6 crore and depreciation increased 3.2% to Rs 6.9 crore. PBT increased by 28.5% to Rs 115.9 crore. Tax expenses declined by41% to Rs 24.5 crore. Net income stood at 91.5 crore as against net profit of Rs 72.8crore.

At the higher price band of Rs 197, the offer is made at a P/E of 42.8 times TTM (till June 21) EPS (of Rs 4.6). There is no directly comparable listed player, though the company compares itself with Happiest Minds Technologies, which is trading at P/E of 121.8 times TTM (till June 21) EPS (of Rs 10.53). However, between FY19-21, Happiest Mind has grown its sales and net profit at a CAGR of 13.6% and 536.4% while Latent View's sales and profit has grown at a CAGR of 3.1% and 23.8%. Happiest Mind has FY21 RONW of 39.9% compared to Latent View's 23.3%. Happiest Mind's revenue is 2.5 times latent View's.