Results buoy sentiment

QUARTERLY RESULT ANALYSIS: September 2004

Operating profit29.4623.326.44 OPM (%)15.2713.262.01 Net profit31.5135.28-10.69 NPM (%)16.3320.07-3.74 EPS (Rs)16.318.2

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Trailing 12-month P/E37.69
The results were not well received by the markets and MphasiS' stock slipped over 6 per cent in last Monday's trading session. The company expects revenues and profits to rise 35-40 per cent and 40-45 per cent respectively in FY05.  Though analysts say the company looks to be on course to meet its revenue target, given its recent performances, foreign exchange losses remain a concern as far as profits are concerned. They say the acquisition of Kshema Technologies has a positive effect on IT services revenues.  The profitability of the company's BPO business is also rising. At Rs 282.55, MphasiS trades at a P/E of 37.69. Analysts say the stock is fairly valued around the current levels. However, its performance in the next two quarters will be crucial, they add.  HUGHES SOFTWARE
Drop in other income drags net margins  Hughes Software posted decent growth in the September quarter with its topline growing 7.68 per cent and bottomline edging up 4.07 per cent. Although gross margins saw an improvement, net margins slipped 75 basis points due to a 53.13 per cent drop in other income.

Total expenditure declined 90 basis points as a percentage of sales as a result of a 148 basis-point reduction in staff costs. However, travelling expenditure shot up over 135 basis points.

Revenues from the telecom segment (95.8 per cent of sales) grew 7.09 per cent to Rs 111.7 crore while those from the BPO segment (4.2 per cent of sales) grew 22.5 per cent to Rs 4.9 crore.

Domestic sales grew 7.32 per cent to Rs 8.8 crore while export sales grew 7.69 per cent to Rs 107.8 crore.

While revenues from HNS (erstwhile parent) grew 2 per cent, non-HNS revenues rose 11 per cent, driving the topline growth.

The proportion of revenues from HNS services and products slipped to 17 per cent and 14 per cent respectively from 18 per cent and 15 per cent. 

Hughes Software
(In Rs crore)	Q205	Q105	% Chng
Net sales	117.80	109.4	7.68
Other income	1.50	3.20	-53.13
Operating profit	34.60	31.20	10.90
OPM (%)	29.37	28.52	0.85
Net profit	25.60	24.60	4.07
NPM (%)	21.73	22.49	-0.75
EPS (Rs)	7.58	7.28	-
Trailing 12-month P/E			19.94

 Analysts say though Hughes has managed to grow its revenues steadily over the last few quarters, it has been volatile on the profitability front. They say the company's products division, which has been ailing for some time, and the lacklustre show by its BPO services are worrying factors. The company expects sales and profits to grow 5-6 per cent each in Q3FY05.  Analysts say though it may achieve these growth levels, thanks to its new parent company, its showing in the products business remains a concern. At the current price of Rs 560.55, the stock is trading at a P/E of 19.99. Analysts feel that valuations are on the higher side and advocate a wait-and-watch policy.  MASTEK
Dependence on top clients remains a concern  Mastek had indicated that its September-quarter results would be muted and that is exactly what happened. The company's topline slipped 0.8 per cent to Rs 128.07 crore while its net profit edged up 2.18 per cent to Rs 12.16 crore. Other income slipped 14.78 per cent.

Operating margins slipped 165 basis points due to a 300 basis-point jump in travelling expenses, though staff costs were pruned by 115 basis points.

Revenues from India and North America fell 22.7 per cent and 14.9 per cent respectively while those from the Asia Pacific region grew 29.13 per cent.

The contribution from top five and 10 clients grew to 59 per cent and 75 per cent of total revenues respectively.

The number of active clients slipped to 56 from 58. The company managed to maintain its revenues because of a 15.6 per cent growth in revenues from the top five clients. Revenues from the rest of the clients fell 16.4 per cent.

In terms of offerings, revenues from maintenance grew 20.30 per cent while that from implementation fell 46.18 per cent.

Revenues from financial services grew 4.16 per cent but those from all other verticals - notably telecom, retailing and IT and other services - slipped.

There has been a shift towards time and material contracts (78 per cent of total project revenues) with the percentage of fixed-price contracts falling to 21.3 per cent of project revenues from 41.93 per cent. 

Mastek
(In Rs crore)	Q105	Q404	% Chng
Net sales	128.07	128.17	-0.08
Other income	2.48	2.91	-14.78
Operating profit	20.77	22.90	-9.30
OPM (%)	16.22	17.87	-1.65
Net profit	12.16	11.9	2.18
NPM (%)	9.49	9.28	0.21
EPS (Rs)	8.80	8.60	-
Trailing 12-month P/E			20.04

 Analysts say though topline growth was expected to be dull, the continuance of the trend would be worrisome going forward. According to them, the dependence on the top five clients for revenue growth is not a healthy sign either though the shift to time and material contracts is positive.  However, the company's not-so-rosy record and its inability to grow the existing businesses would impede the stock's attractiveness, they add. They peg an EPS target of Rs 30 for FY05. At the current price of Rs 352.35, the stock trades at a P/E of 20.04.  ALLAHABAD BANK
Net interest income fuels profit growth  Allahabad Bank posted stupendous second-quarter results on the back of an increase in its net interest income (NII). An increase of 33.83 per cent in NII to Rs 363.37 crore helped the bank's net profit jump 118.11 per cent to Rs 165.57 crore.  Analysts tracking the sector say that the bank is now gearing up its business and the impressive numbers are a result of a low base effect. Given the fact that banks in general were expected to post dreary results, Allahabad Bank's performance came as a respite.

In addition to NII, lower operating expenses have also enhanced profits. Expenses fell 25 per cent to Rs 232.16 crore due to cost-trimming measures and technological upgradation.

The bank has performed well on its banking operations front as well. Profits from banking operations have leaped 252 per cent to Rs 236.41 crore. This signals renewed thrust on lending, especially retail, say analysts.

Treasury numbers, too, were not disappointing. At a time when interest rates are tightening, the bank has managed to pull off with just a 0.8 per cent decline in other income to Rs 165.53 crore. Profits from treasury operations declined 8 per cent to Rs 109.68 crore.

Net NPAs were brought down from 5.21 per cent to 1.64 per cent. The bank targets to cut NPAs to below 1 per cent by the end of FY05. Gross NPAs, too, fell to 6.7 per cent from 12.3 per cent. 

Allahabad Bank
(In Rs crore)	Q2FY05	Q2FY04	% Chng
Interest income	805.97	673.12	19.74
Interest expended	442.60	401.61	10.21
Net interest income	363.37	271.51	33.83
Other income	165.53	166.86	-0.80
Operating profit	296.74	129.33	129.44
OPM (%)	30.54	15.40	-
Net profit	165.57	75.91	118.11
NPM (%)	17.04	9.04	-
EPS	4.78	2.19	-
Trailing 12-month P/E			2.61

 Analysts believe the bank may sustain that performance for another two-three quarters considering the low base last year.  "We expect an earnings per share of Rs 15-15.5 for FY05," says an analyst with a domestic brokerage and research house. Considering a price of Rs 46.80, the stock currently trades at a P/E of 3.12 times its FY05 earnings.  UTI BANK
Treasury losses dent profitability  Keeping in line with expectations of lower profitability due to treasury losses, UTI Bank posted a 27.98 per cent decline in its net profit at Rs 46.22 crore. This was on back of a trading loss of Rs 94.85 crore against a profit of Rs 101.91 crore last year.  The trading loss was due to an accounting loss of Rs 114.53 crore booked for transfer of government securities from the 'available for sale' portfolio to the 'held to maturity' portfolio.  However, this is a one-time charge. The bank has performed well on its core business front and analysts expect it to continue the performance.

The bank's net interest income rose an impressive 30.98 per cent to Rs 180.72 crore as a result of lower cost of funds (4.73 per cent against 5.8 per cent). Meanwhile, net interest margins improved 8 basis points to 3.12 per cent compared to 3.04 per cent.

Net advances stood at Rs 10,498 crore, a healthy increase of 41 per cent while retail advances posted a stupendous rise of 92 per cent to Rs 2,698, accounting for 26 per cent of total advances.

The bank's capital adequacy ratio declined to 10.67 per cent (11.24 per cent) because of a lower net profit and a rise in assets.

Net NPAs fell to 1.33 per cent from 1.97 per cent and analysts expect the levels to fall below 1 per cent by the end of FY05. 

UTI Bank
(In Rs crore)	Q2FY05	Q2FY04	% Chng
Interest income	449.31	393.97	14.05
Interest expended	268.59	255.99	4.92
Net interest income	180.72	137.98	30.98
Other income	-3.59	149.82	-102.40
Operating profit	38.39	181.01	-78.79
OPM (%)	8.61	33.29	-
Net profit	46.22	64.18	-27.98
NPM (%)	10.37	11.80	-
EPS	1.99	2.79	-28.67
Trailing 12-month P/E			12.69

 The performance is appreciable, barring the loss on its trading portfolio. Analysts are positive about the bank's growth. For FY05, a net profit of Rs 295 crore is expected (that will translate to an increase of 6 per cent from FY04 figures).  The bank is also likely to come out with an initial public offer of fresh equity which will dilute the promoters' share. Currently, the stock trades at a P/E multiple of 12.69 times given the price of Rs 152.15.  HERO HONDA
Raw material costs hit operating margins  Two-wheeler major Hero Honda's Q2 results were in line with analysts' expectations. Net profit grew 24.15 per cent to Rs 194.36 crore on the back of a 38 per cent surge in volumes to 614,796 units. Meanwhile, revenues increased 39.3 per cent to Rs 1,757.16 crore. Analysts expect the company to be one of the biggest beneficiaries with the festive season in tow.

Despite healthy growth in sales, a rise in costs of raw materials seems to have hit operating margins. Raw material costs increased 42 per cent to Rs 1,207.18 crore and rose 130 basis points as a percentage of sales. As a result operating margins fell 85 basis points to 15.64 per cent.

Revenue per unit increased marginally by 1.19 per cent to Rs 28,581.19 which was made up for by impressive volumes growth.

Staff cost as a percentage of sales was reduced to some extent - it fell 75 basis points to 3.6 per cent. However, that did not enhance margins.

Hero Honda