LatentView Analytics is a pure-play data analytics company. The company designs and engineers result-oriented analytics solutions for clients across industries to operate more efficiently by predicting outcomes that fuel digital transformation and sustainability. LatentView Analytics' 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 (contributed about 60 per cent to FY21 revenue), data engineering and digital solutions (20 per cent), data and analytics consulting (15 per cent), and advanced predictive analytics (5 per cent). It engages and provides services to blue-chip companies in technology (about 63.2 per cent of FY21 revenue), industrials (17.5 per cent), consumer packaged goods & retail (9.6 per cent), and BFSI (9.6 per cent) industries. LatentView Analytics' clients span across countries in the US, Europe, and Asia. The company has worked with over 30 Fortune 500 companies in the last three years. As of September 30, 2021, it had 46 active clients.
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. The company aims to leverage these opportunities and is exploring strategic acquisition opportunities that will enable it to gain access to new geographies, industries, and client base. It also plans to use some of the proceeds to invest in a few of its subsidiaries to augment their capital base to fund client acquisition, build its delivery infrastructure and enhance the technology infrastructure.
Wide range of capabilities: Functional expertise is the foundation of LatentView Analytics' operations. Combining that with business knowledge, quantitative methods, and data management helps it provide end-to-end business solutions. The company's portfolio offers a distinctive breadth and depth of capabilities, including descriptive and prescriptive analytics with intuitive and personalised dashboards that can drive monetisation by improving sales and marketing efficiency, customer experience, and operational efficiency.
Relationship with blue-chip clients: Its relationship with its top five clients has been, on average, for over six years. The company begins its engagements with its clients by providing business intelligence and visualisation services, which later evolve into deeper engagements for advanced analytics and predictive modelling. The majority of its revenue is generated through long-term agreements.
Industry tailwind: COVID-19 pandemic has led to a digital divide - companies that had invested in digital initiatives rather than legacy IT infrastructure are better placed. Consequently, companies across industries are undertaking efforts to minimise the spending on the maintenance of legacy applications and rapidly scaling up investments in digital technologies to fuel growth. As a result, IT spending on digital technologies is expected to reach $2.4 trillion by 2024 from $1.3 trillion in 2020. Within the broader digital technologies segment, LatentView Analytics operates in the data and analytics sub-segment. This sub-segment is expected to grow at a CAGR of 18 per cent to approximately $333 billion by 2024 (as per a report by Zinnov, commissioned by LatentView).
Client concentration: The company's top five clients (all from the technology industry) accounted for 54 per cent, 53.7 per cent, and 54.7 per cent of total revenue in FY21, FY20, and FY19, respectively. Given that the company's growth strategy hinges on its plan to increase its scope and service with its existing clients, any trouble in maintaining its relationship with these clients could put LatentView Analytics in a spot of bother.
Intense competition: The market for data and analytics is very competitive, and it will only increase in the future, given the importance and use of data. The company faces competition from large and emerging enterprises, each vying for an increasing share of the customer's wallet. To keep itself competitive, the company has to invest in all aspects of business, like, personnel, research, and development. Moreover, the drawback when competing with larger enterprises is the availability of financial resources and the broader and diverse service offerings of such enterprises.
Constant updating of technology and digital solutions: The nature of the business is such that LatentView Analytics cannot afford to get complacent. It has to constantly keep abreast of the latest technologies and effectively use them for its clients. Moreover, it is susceptible to introducing new and better services by its competitors, which may make its offerings obsolete. Any defects, errors, or failures in the company's offerings may also jeopardise the market acceptance of its products.
Forex risk: As the company generates more than 95 per cent of its revenue from outside India, it is exposed to foreign exchange-related risks.
1) Are the company's earnings before tax more than Rs 50 crore in the last 12 months?
Yes. In the last 12 months ending June 2021, the company's earnings before tax stood at Rs 115.8 crore.
2) Will the company be able to scale up its business?
Yes. LatentView Analytics has significant operating leverage and low capital requirements, which translate into healthy free cash flows. Moreover, high levels of client retention and shift towards multi-year contracts result in higher revenue visibility.
3) Does the company have recognisable brands truly valued by its customers?
Not applicable. The company is involved in the B2B supply of data and analytics services. However, it has long-standing relationships with several global blue-chip companies.
4) Does the company have high repeat customer usage?
Yes. The company's relationship with its top five clients has been for, on average, over six years. Moreover, the majority of its revenues is generated through long-term agreements.
5) Does the company have a credible moat?
No. Though the company's deep business, technical, math, and consulting expertise has allowed it to become one of the leading analytics companies, this does not translate into a credible moat. That's because it operates in an industry facing severe competition for talent, and its small scale of operations compared to other companies, as TCS put it in a tough spot.
6) Is the company sufficiently robust to major regulatory or geopolitical risks?
Yes. The company is sufficiently robust to major regulatory or geopolitical risk.
7) Is the business of the company immune from easy replication by new players?
No. Even though the company operates in the higher end of the predictive analytics segment and successfully replicating its business would require many factors (like personnel, technology, math, and model), the increasing opportunities in the digital segment would lead to the entry of new players.
8) Is the company's product able to withstand being easily substituted or outdated?
Yes. In an increasingly data-driven world, the company's services do not have any substitutes.
9) Are the customers of the company devoid of significant bargaining power?
No. While the company enters into contracts with its clients, these clients are mainly large enterprises. These enterprises have greater leverage in negotiating contractual agreements.
10) Are the suppliers of the company devoid of significant bargaining power?
No. Suppliers in the case of tech companies can be associated with employees with technological skills. With intense competition for employees in the marketplace, especially those with advanced skills, bargaining power with companies is low.
11) Is the level of competition the company faces relatively low?
No. The company faces competition from both large and emerging enterprises. Moreover, some of the larger competitors have substantially broader and more diverse service offerings. They may be able to leverage their relationships with distribution partners and clients to gain business in a manner that discourages clients from procuring LatentView Analytics' services.
12) Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
Yes. Post-IPO, the promoter and promoter group will hold about a 68 per cent stake in the company.
13) Do the top three managers have more than 15 years of combined leadership at the company?
No. CEO Rajan Sethuraman joined the company in 2016, and CFO Rajan Bala Venkatesan joined the company in July 2021.
14) Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
Yes, we have no reason to believe otherwise.
15) Is the company free of litigation in court or with the regulator that casts doubts on the management's intention?
Yes, the company is free from any material litigation.
16) Is the company's accounting policy stable?
Yes. As per the auditors' report, the accounting policy is stable.
17) Is the company free of promoter pledging of its shares?
Yes. The company's shares are free of any pledging.
18) Did the company generate a current and three-year average return on equity of more than 15 per cent and return on capital employed of more than 18 per cent?
Yes, the three-year average (FY19-21) ROE and ROCE stood at 21.4 per cent, and 24.7 per cent, respectively. The current ROE and ROCE stand at 20.9 per cent and 23.9 per cent, respectively, in FY21.
19) Was the company's operating cash flow positive during the last three years?
Yes, the company's operating cash flow was positive in the last three years.
20) Did the company increase its revenue by 10 per cent CAGR in the last three years?
No. The company's revenues increased from Rs 287.9 crore in FY19 to Rs 305.9 crore in FY21 at a CAGR of 3.0 per cent.
21) Is the company's net debt-to-equity ratio less than one, or is its interest-coverage ratio more than two?
Yes. The company's net debt-to-equity ratio stood at -0.46 (i.e., net cash) as of June 30, 2021, and its interest-coverage ratio stood at 46.1.
22) Is the company free from reliance on huge working capital for day-to-day affairs?
Yes. The company has positive working capital and a strong cash position. With a working capital cycle of 62 days, it will not need huge working capital.
23) Can the company run its business without relying on external funding in the next three years?
Yes. The company has planned to utilise its proceeds for inorganic growth and investment in subsidiaries. With low capital requirements and high operating leverage, the business generates strong free cash flows, which the company can put to good use.
24) Have the company's short-term borrowings remained stable or declined (not increased by greater than 15 per cent)?
No. Though the company did not have any short-term borrowings from FY19 to FY21, on June 30, 2021, it posted Rs 66 crore as its short-term borrowings.
25) Is the company free from meaningful contingent liabilities?
Yes, the company does not have any contingent liabilities.
26) Does the stock offer an operating-earnings yield of more than 8 per cent on its enterprise value?
No. The company will give an operating-earnings yield of around 3.0 per cent based on June 2021 TTM operating earnings.
27) Is the stock's price-to-earnings less than its peers' median level?
Yes. Note that there are no pure-play analytics companies listed in India and, therefore, no direct peers for the company. The closest comparable for the company is Happiest Minds that trades at a P/E of 118.9, which is more than LatentView Analytics' post-IPO P/E of 42.8.
28) Is the stock's price-to-book value less than its peers' average level?
Yes. Since there are no pure-play analytics companies listed in India, there are no direct peers. The closest comparable for the company is Happiest Minds that trades at a P/B of 32.2, which is more than LatentView Analytics' post-IPO P/B of 4.2.
Disclaimer: The authors may be an applicant in this Initial Public Offering.