Stock Pick From Software and Computer Sector

·         Government initiatives to give boost to its revenue.

·         Lower financial inclusion remains an opportunity for Vakrangee.

·         Alliance with Amazon India and Mypacco for e-commerce products and services.

Information technology is one of the most important facilitators for the transformation of the Indian banking industry in terms of its transactions’ processing as well as financial inclusion across India. In the competitive and highly skilled IT market, Vakrangee is one of the highlighted and leading companies, benefitting from financial inclusion, government programmes, and a wider access to basic goods and services. Vakrangee is a technology-driven company, focused on creating India’s largest network of last-mile retail points-of-sale.

Vakrangee has already created 757 million Aadhar cards and is now targeting 1 billion nationally. The company is also targeting around 60 per cent share in the Aadhar project. Further, the company is focusing on bank account opening and linking this with Aadhar for direct benefit transfer. It is planning for the expansion of its branch network, especially in urban India. Further, the company has already applied for a payment bank license; however, this is yet to be granted. On receipt of the payment bank license, the company would get up to 2 per cent commission from the government for direct benefit transfer, an effective yield of more than 4 per cent on cash parked with the RBI, and commission for fund transfer from customers as against current maximum of Rs 48 for every Rs 10,000 handled for the banks.

Vakrangee is the common Business Correspondent (BC) for 31 banks and seven national BCs. There is huge opportunity for the company to expand and penetrate in the rural area since for the second phase of the financial inclusion plan from 2014-2016, the remaining 4,90,000 unbanked villages have been identified and allocated to banks for opening banking outlets. Also, the government has launched a comprehensive financial inclusion initiative called the Pradhan Mantri Jan Dhan Yojana (PMJDY). The objective of PMJDY is to ensure access to various financial services.

Recently Vakrangee entered into a strategic tie-up with the online shopping portal Amazon India. The company will open more than 37,000 centres across the country to help the e-commerce giant sell in rural and semi-urban areas. Vakrangee now has 12,568 centres in place and aims to have more than 50,000 centres in the next two years. In yet another strategic partnership, the company has entered into a partnership with Mypacco, an online logistic solutions’ provider. The partnership with Mypacco will allow the company to offer convenient access to domestic as well as international courier services at competitive prices to citizens in their neighborhood. Vakrangee Kendra customers will now be able to send parcels to more than 14,000 pin codes in India and to 200 countries.

On the financial front, Vakrangee has consistently posted good financial performance with 25.58 per cent CAGR in its revenue and 46.33 per cent CAGR in its net profit for the last five years. Interestingly, the company has posted net profit margin of 11.58 per cent. As the company’s network expands deeper into the rural area, the company will increase its competitive advantage which will give it more bargaining power while negotiating commissions with various financial and non-financial institutions. We see considerable appreciation in this stock for the next one year.