FCS Software

The scrip has jumped heavily in the last 1 month, before the last week tainted the growth with a 16% drop. (all time high at 144 rupees). FCS is a low m-cap stock (165 crs). The revenue of the company has been inconsistent and yet, they have been able to maintain the growth in EPS quarter on quarter. The stock seems out of favour with the mutual funds aswell.

Interestingly, FCS has a very low price-earning as compared to other IT scrips ... just about 5.2 (current price = 116; expected 1-yr fwd EPS = 22). There has been some recent activity in the stock which pushed the price from the 80 levels to 145 .. then back to 116 rupees per share. A word of caution, 97% of FCS's revenue comes from the US and they have not hedged their currency.

In a recent notice to the BSE, FCS Software had claimed that subject to Board approval, it'll issue 25,00,000 share warrants on preferential basis to some investors convertible at Rs 150/- per share (Rs 10/- face value + Rs 140/- premium). Interestingly, the market price of the scrip on that date (Jan 10) was just 116 rupees.

Warrants by nature, are quite speculative. If one believes the price of the share will increase in the coming months, then one can just buy the share and sell it off later (at a higher price). Warrants offer the option of leverage however. So you can commit, say 10% of the money to purchase a warrant call and fix the price. This will allow you to garner more share commitments and if the price of the share really shoots up .. the warrants can be converted at the exercise price. If thats the hypothesis with FCS Software, then FCS is a buy !

FCS has some uncertainty but can turnout to be a high risk-high return investment.