Company Overview

 

Quick Heal Technologies Ltd. (Formerly Known as Quick Heal Technologies Pvt. Ltd.) is one of the leading IT security solutions company. Each Quick Heal product is designed to simplify IT security management across the length and depth of devices and on multiple platforms. They are customized to suit consumers, small businesses, Government establishments and corporate houses.

Over a span of over 20 years the company's R&D has focused on computer and network security solutions. The current portfolio of cloud-based security and advanced machine learning enabled solutions stop threats, attacks and malicious traffic before it strikes. This considerably reduces the system resource usage. The security solutions are indigenously developed in India. Quick Heal Antivirus Solutions, Quick Heal Scan Engine and the entire range of Quick Heal products are proprietary items of Quick Heal Technologies Ltd. (Formerly Known as Quick Heal Technologies Pvt. Ltd.)

Industry Overview

Cyber-related risks are a global threat. Cyber-security threat landscape in India has evolved over the past few years. During the past four years, India registered over 1,90,000 cases of cybercrime incidents. At present, Cyber-security market in India, stands around $4 billion with the industry exhibiting a growth of over 100% during the similar period. Growing number of internet users and proliferation of mobile and personal computing devices in the country resulted in increased threat level among the users, consequently, leading to growth in demand for antivirus software. Additionally, awareness among several end-users are increasingly rising, urging the users to opt for paid antivirus software solutions; enterprises increased their security budgets and have started investing heavily in these solutions. 

 

According to a recent study, India antivirus software market is forecast to grow at a CAGR of 13.4% during 2018-24. With the wave of IoT and Digitization approaching the Indian sub-continent, antivirus software market is expected to follow an upward trend in near-future. Sales of personal computing and mobile devices are expected to surge and investment to boost the digital infrastructure of the country; implementation of cyber-security projects likely to ramp-up further leading to growth of antivirus software market in the country. Ministry of Electronics and Information Technology (MeitY) mandated all other Ministries to earmark 10% of their IT budgets for security spending.

 

Over 60% of the cyber-attacks have been targeted towards enterprise segment during 2016-17. Enterprise segment has always remained a goldmine for antivirus vendors in the Indian market capturing the largest share of market pie. The segment is exhibiting a shift in purchase from standalone antivirus product towards complete security solutions. BFSI and IT &ITeS verticals were the key adoptees of antivirus software solutions in Indian market.

 

Additionally, the individual segment is still dominated by availability of open source and freemium antivirus solutions in the market. However, the segment witnessed a shift in purchase of paid antivirus software with rise in awareness level. Also, growing mobile user base opened-up significant opportunities for market vendors to leverage upon and is likely to boost the revenues generated from the segment. Market vendors are partnering with telecom vendors to offer solutions based on subscription-based model.

 

Also, mobile segment is still at the nascent stage of the industry curve. However, the segment is anticipated to clock the highest growth among the other product types. With the advent of IoT, smartphones are expected to account for over 35% of all networked devices by 2020. Moreover, online sales for mobile antivirus software is on the rise with higher preference exhibited towards the purchase of single user multi-device software solutions.

 

FinancialAnalysis

 

Years	2018	2017	2016	2015
Net Profit Margin	26.08%	17.74%	17.27%	18.81%
EBITDA Margin	47.23%	38.28%	33.21%	34.96%
ROCE	17.00%	12.63%	14.59%	12.90%
ROE	11.47%	8.04%	9.62%	0.00%
Current Ratio	10.37	7.11	4.52	2.28

 

1. Over the past 4 years, the company has experienced mediocre sales growth of around 3.62% p.a. The overall revenue growth, however, is slightly higher at 5.77% p.a. due to increase in other income. The increase in Net Profit has been 15.55% p.a. which shows that the company’s cost management has improved.
2. The company’s EBITDA margin has also improved substantially to approximately 26%, and the ROCE as well as ROE are also resting at healthy levels now.
3. The company is virtually debt free.
4. The cash flow of the company also seems to be at a comfortable level.

(Rs. in Crores)

Years	2018	2017	2016	2015
Cash from Operations	93.90	35.83	78.10	77.19
Net Profit	83.01	53.23	58.40	53.80

4. 1. The Cash from operations has remained well above the PAT in all the past years.
5. The overall cash outflows in the last 4 years have been:

(Rs. in Crores)

Years	2018	2017	2016	2015
Cash from Operating Activity	93.90	35.83	78.10	77.19
Cash from Investing Activity	-122.37	-72.78	-163.36	-52.52
Current Investments Bought	-567.44	-290.17	-206.67	-16.78
Fixed Assets Purchased	-13.56	-34.73	-36.21	-66.10
Fixed Assets Sold	0.12	0.43	0.04	0.11
Cash from Financing Activity	-18.53	-20.48	189.48	-17.50
Operating Cash Flow to Sales	0.29	0.12	0.23	0.27

5. 1. With improvement in profitability, the company generated Cash profit of 106 crore in 2018 as compared to 90 crore generated in 2017. Overall cash balance, increased to INR 463 crore against 384 crore in 2017.
   2. Most importantly, core ROCE (without considering the cash balance), after three consecutive years of continuous fall, came back to 30% levels in FY18.
6. In the most recent quarter (Q2FY19), the company has done almost double the sales against the previous quarter, at 117.5 crore.
7. The promoter and promoter group have 72.5% shareholding.
8. The total compensation to key managerial personnel is approximately 6 crore, which is 6.86 % of PAT.
9. The company has really low inventory, at around 5.6 crore in 2018, and the inventory growth in the past 4 years has actually been negative, at around -10.5% p.a., and the trade recievables have grown at a rate of 16.76% p.a.
10. The company has tax contingent liabilities worth 122.3 crore.

Future Prospects

Positive

1. The company is shifting its focus from its retail segment to include the enterprise segment. The company’s focus now is to consolidate their enterprise solutions under Seqrite and offer better products based on AI and cloud to add large enterprise customers, as their current customers are mostly SMEs.
2. Demonetisation played a crucial role in increasing the penetration and acceptability of Digital Payments. various initiatives like introduction of Unified Payments Interface (UPI), Bharat Interface for Money (BhIM) supported faster transition to digital payments. however, with increasing penetration of Digital Payments, the stakeholders of Digital Payment ecosystem face a critical challenge in form of Cybersecurity risks such as online fraud, information theft and malware or virus attacks. This increases demand for digital protection.
3. The company sells its solutions directly and through distributors, whom it refers to as channel partners, who in turn distribute through resellers. The company has established strong, sustainable and long-term relationships with its channel partners and also has a strong internal sales and marketing team comprising 400 employees who work closely with channel partners to identify new sales prospects, sell solutions and provide after-sale support. Their channel network comprises 21,401 channel partners, 527 Enterprise Partners, 164 Government Partners and 12 Mobile Distributors.

Negative

1. Quick Heal has in the past depended heavily on sales of its “Quick Heal” branded solutions to home users. Though the company is working on diversifying revenues, any factor adversely affecting sales of its solutions to home users; its inability to retain existing customers or attract new customers will negatively impact company’s profitability even in the enterprise segment.

 

Conclusion - AVOID

#1. Overall, the company financials are as yet in a good shape. The business model of antivirus doesn't have any moat or customer stickiness, it's all price whoever offers lower price, users are going to fall back to them.

#2. The shift in focus from retail to enterprise customers will be beneficial, as not only is the requirement for an antivirus much more in enterprises, but, with windows defender being pre- installed on all devices operating windows, individual buyers are less likely to buy additional antivirus.

#3. In Global context also, most of the antivirus companies like Norton, McAfee etc are not in good shape, none of the top global fund houses own such kind of businesses in their portfolio.