Infotech results show mixed trends

QUARTERLY RESULTS ANALYSIS : MARCH 2004

Mastek
(Rs Cr)	Q304	Q204	% Chng
Sales	102.90	93.12	10.50
Other income	2.36	2.40	-1.67
Operating profit	14.71	7.42	98.25
OPM (%)	14.30	7.97	-
Net profit	10.02	4.09	144.99
Net margin	9.74	4.39	-
EPS (Rs)	7.09	-	-
Trailing 12-month EPS (Rs)	14.03	-	-
Price-earnings ratio	19.69	-	-

 

• Operation margin grew due to a 17.72 per cent decline(sequential) in programming cost and other expenses as a proportion of sales.
• Revenues from North America slipped 23 per cent to Rs 22.33 crore on a sequential basis while that from Europe grew 25 per cent to Rs 60.69 crore.
• The number of active clients slipped to 61 in the quarter from 64 in the December quarter.
• Revenues from IT and other services witnessed a huge sequential drop of almost 48 per cent. However, revenues from financial services grew 17 per cent sequentially while those from government contracts and education rose 37.6 per cent and 27.2 per cent respectively.
• The company increased its total headcount by 165 employees in the quarter. The bulk of the recruitment was for the company's onsite operations. Onsite utilisation levels were constant in the quarter while offshore utilisation increased 6 per cent.
• Mastek's share of revenue from its joint venture rose 42.8 per cent sequentially to Rs 12.28 crore. Staff costs rose 6.7 per cent sequentially, but programming charges witnessed a 17.65 per cent drop in the same period.

 The performance prompted a 7 per cent jump in Mastek's share price on the day of the results. At Rs 276.20, Mastek trades at a valuation of 19.69x.  Analysts say volatility in performance is typical of Mastek which gets a big chunk of revenues from large one-time projects. Once a project is executed, the company needs to bag another order of a similar or larger size to maintain revenue growth.  However, analysts fear that the company has gone way off mark on the revenue guidance for FY04 in which revenues were expected to grow 21 per cent.  In order to meet the original target, the company would have to grow revenues by 60.8 per cent in the June quarter on a sequential basis. Mastek expects its group revenue to increase 3-5 per cent and the group PAT to grow 20-30 per cent over January-March 2004 period.  HUGHES SOFTWARE
Rupee appreciation, staff costs hit operating margins  Hughes Software Systems, which had a wonderful run till the nine months ended December 31, 2003, reported a lacklustre performance in the March 2004 quarter.  Hughes' revenues grew just 3.9 per cent sequentially in the quarter, compared to the double-digit growth in the previous quarter. A near 4 per cent appreciation in rupee last quarter affected the company to the tune of Rs 2.6 crore (net loss), compared to a forex gain in the December quarter.  This along with an increase in staff costs dragged operating margins which fell almost 500 basis points to 25.12 per cent. Net profits fell 11.3 per cent sequentially.  The December quarter results included a one-time royalty payment relating to the Spaceway project, owing to which margins were higher than usual (since royalties flow straight into the bottomline). 

Hughes Software
(Rs Cr)	Q404	Q304	% Chng
Sales	100.3	96.50	3.94
Other income	2.70	2.30	17.39
Operating profit	25.20	29.00	-13.10
OPM (%)	25.12	30.05	-
Net profit	21.20	23.90	-11.30
Net margin	21.14	24.77	-
EPS (Rs)	6.29	-	-
Trailing 12-month EPS (Rs)	11.27	-	-
Price-earnings ratio	47.72	-	-

 

• Revenue from parent company, Hughes Network Systems (HNS) fell 15 per cent on a sequential basis. Non-HNS services revenues continued to grow at a steady rate - up 9.3 per cent in the last quarter. Analysts say effective December 2003, there has been a change in ownership at HNS's end which seems to have affected business coming from the parent.
• The company's products business witnessed a sequential growth of 10.43 per cent while its BPO business grew a shade below 4 per cent in the same period.
• Staff costs increased by 7.65 per cent on a sequential basis. The variable pay component was higher last quarter by around Rs 1.3 crore.

 The sequential drop in net profit was not received well by the markets - the stock fell over 6 per cent on the day results were announced. Importantly, for the full year, the company has done exceedingly well - revenues grew 63 per cent and net profit more than doubled.  Analysts feel that this is priced into the stock which has risen almost 300 per cent since last year. Moreover, the stock trades at almost 47.72 times and analysts feel that investors in the stock should wait to buy at lower levels.  ZEE TELEFILMS
Flat profit growth disappoints analysts  Zee Telefilms posted results that were below analysts' expectations. For the March quarter, while prima facie the bottomline showed a surge of 93 per cent upon excluding the extraordinary write-off in the corresponding previous quarter, PAT grew a mere 9 per cent.  For FY04, the consolidate net profit registered a growth of 19 per cent (after excluding the extra-ordinary write-off) on the back of a topline growth of 13 per cent. The company's growth in FY04 was driven by a 24 per cent rise in subscription revenues and an 18 per cent reduction in interest outgo. 

Zee Telefilms
(Rs Cr)	Q404	Q403	% Chng
Sales	382.58	351.45	8.86
Other income	16.26	23.03	-29.40
Operating profit	127.38	103.82	22.69
OPM (%)	33.29	29.54	-
Net profit	87.60	80.76	8.47
Net margin	22.90	22.98	-
EPS (Rs)	1.08	-	-
Trailing 12-month EPS (Rs)	2.83	-	-
Price-earnings ratio	52.83	-	-

 

• The share of advertisement revenues as a percentage of total revenues continued to slip to 46 per cent in FY04 from 52 per cent of total revenues in FY03.
• The fourth quarter of the company witnessed a 3.9 per cent decline in transmission and programming costs due to lower programming costs as compared to last year.
• Overall subscription revenues, including domestic and international businesses, registered an increase of 14.2 per cent over the same quarter last fiscal. Domestic pay revenues increased 21 per cent over the corresponding period last year.
• However, growth in ad revenues remained largely lacklustre for the full year. They, however, showed a modest 6 per cent y-o-y growth in the March quarter. While ad revenues have been on an uptrend since Q2 FY04, the negative 13 per cent growth they witnessed during Q1 FY04, owing to the cricket world cup on a competing channel, subdued the overall picture for the full year.

 The Zee stock is trading at Rs 150 at a P/E of 52.83x. While growth in subscription revenues has continued as expected, the recovery in adspend since H1 FY04 has also aided the company's growth.  Though analysts expect the improvement in ad revenues to continue on the back of higher economic growth going forward, they say the quality of programming and management remains a concern. DTH and CAS would bear fruit in the long term and investors should wait and watch how the events pan out before taking a plunge, they add.  WIPRO
Global IT business boosts performance  Wipro's results were higher than analysts' expectations with revenues growing 44.3 per cent in the March quarter compared to the year-ago period. The company's net profit showed a 42.3 per cent growth in the same period, but the growth in net would have been much lesser if the higher extraordinary income was excluded.  The performance of the company last fiscal was driven by an excellent performance of is global IT business, particularly the telecom business.  Better realisations in offshore and onshore projects and an increase in the proportion of revenue from offshore projects and the company's hedging strategy have helped it mitigate the effect of rupee appreciation. However, mounting costs had a maleficent effect on margins.

Wipro
(Rs Cr)	Q404	Q403	% Chng
Sales	1786.30	1237.70	44.32
Other income	34.30	10.70	220.56
Operating profit	362.00	260.20	39.12
OPM (%)	20.27	21.02	-
Net profit	320.80	225.40	42.32
Net margin	17.96	18.21	-
EPS (Rs)	11.19	-	-
Trailing 12-month EPS (Rs)	39.56	-	-
Price-earnings ratio	40.27	-	-

 

• Other income grew by 220.6 per cent in the year to Rs 34.3 crore on account of inclusion of profit on sale of land.
• Segment revenue from global IT services and products grew an impressive 43 per cent from the year-ago period, led by the telecom vertical, and forms 74 per cent of total revenues.
• Revenues from the US increased to 52 per cent of total revenues from 45 per cent in the last year while those from the rest of the world slipped to 22 per cent from 26 per cent last year.
• On the cost front, selling and general expenses increased 32.8 per cent while staff costs rose almost 60 per cent in FY04.
• The company hired 9,922 people in the year of which 5,728 are in IT services and rest in BPO services.

 Analysts are confident of revenue growth going forward, given the resurgence in the telecom sector. Wipro quotes at Rs 1593 on the BSE at a P/E of 40.27x.  Analysts say though the company is among the top players in the Indian IT sector with strong technological expertise, its valuations are looking stretched, especially when compared to its peers. They peg an EPS target of Rs 58 for FY05.  SATYAM
Net falls 3.45 per cent, sequential slippage intensifies  Satyam Computer Services did better than its revenue guidance for FY04 by posting an income of Rs 720.7 crore from software services, compared to its projections between Rs 690-700 crore for the period.  However, its performance on a sequential basis left a lot to be desired. The company managed to grow its revenues by only 8.75 per cent on a sequential basis in the March 2004 quarter to Rs 720.7 crore compared to a sequential growth of 10.7 per cent witnessed in the December quarter.  In fact, the slippage in Satyam's net intensified to 3.45 per cent sequentially to Rs 140.8 crore in the quarter compared to 1.16 per cent in the December quarter. 

Satyam
(Rs Cr)	Q404	Q304	% Chng
Sales	720.70	662.70	8.75
Other income	5.00	28.45	-82.43
Operating profit	189.82	173.79	9.22
OPM (%)	26.34	26.22	-
Net profit	140.84	145.87	-3.45
Net margin	19.54	22.01	-
EPS (Rs)	4.46	-	-
Trailing 12-month EPS (Rs)	17.64	-	-
Price-earnings ratio	18.37	-	-

 

• The share of revenues from North America slipped to 69.15 per cent compared to 73.5 per cent in the previous quarter while those from Europe and the rest of the world grew to 15 per cent and 14.07 per cent respectively.
• Revenues from the banking and finance vertical increased to 17.5 per cent of total revenues from 16.6 per cent in the previous quarter while those from insurance slipped to 13.17 per cent from 15 per cent in the previous quarter.
• Onsite billing rates saw a decline of 0.05 per cent on a sequential basis and 1.68 per cent on a y-o-y basis. Offshore rates were more stable.
• Satyam added 1086 offshore employees and 297 onsite employees in the quarter, totally adding 1,695 employees in the quarter, which is its highest quarterly staff intake ever. In the current financial year the company expects to add between 3,500 and 4,000 employees.
• Satyam added 30 customers during the quarter including eight from the Fortune Global 500 list. Total customer additions during the year were 108, including 20 Fortune Global 500 companies.
• The company's board recommended a final dividend of 140 per cent (Rs 2.80 per share), which when included with the interim dividend of 60 per cent, works out to a total dividend of 200 per cent as against 150 per cent declared for 2002-03.

 For FY05, the company expects a 28 -30 per cent growth in income in dollar terms from software services. The EPS for the fiscal is expected to be between Rs 20.28 and Rs 20.62.