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| QUARTERLY RESULTS ANALYSIS: June 2003
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| Barring Hughes Software, all technology companies which declared results last week posted disappointing numbers
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| BHARAT FORGE
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| Exports continue to drive performance
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| Bharat Forge's results for the first quarter were in line with market expectations. The sales and net profits of the company continued to increase on the back new client acquisitions.
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| However, operating margins declined by 50 basis points due to increasing costs, especially steel prices.
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| Revenues, profits and margins
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| The company's net sales increased by 42.22 per cent to touch Rs 185.66 crore, aided by a 79.19 per cent increase in exports. Operating margins remained flat.
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| Operating profits could have been higher but for the rise in steel prices that increased manufacturing costs for the company. Manufacturing costs rose by 54.67 per cent, while operating expenses grew by 43.45 per cent.
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| Analysts' views on business outlook
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| Company officials maintain that operating margins should not fall further.
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| "We have passed on most of the price increases to customers and therefore, margins are unlikely to fall further," said a company official in an analysts' conference call held after the results. Analysts concur with the company's viewpoint.
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| They say the rise in prices that the company has effected should stabilise margins with a lag effect. Thus, performance in the coming quarters should be better.
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| Even more, analysts say the company should post better numbers in the third and fourth quarters as the second half of the fiscal is usually better for most auto companies.
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| Share price and valuations
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| After the results were announced on Tuesday, the stock price decreased from Rs 386.35 to Rs 370.65. Based on Friday prices, the stock trades at a price-earnings (P/E) multiple of 15.21 times.
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| Avinash Gorakshakar, research analyst with Emkay, says, "the stock is fully priced at present. Unless the company announces a major export deal, I do not see any major increase in the price."
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| HDFC BANK
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| Impressive growth in retail assets
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| HDFC Bank showed a healthy increase in interest income and net profit for the quarter, driven by a phenomenal 132 per cent growth in the retail portfolio.
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| Total retail assets stood at Rs 3,790 crore compared to Rs 3,350 crore a year ago. It is important to note that the retail book of HDFC Bank does not include a home-loan portfolio at present.
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| Revenues, profits and margins
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| The interest income of the bank grew by 21.98 per cent. There was a corresponding 63.21 per cent increase in other income, and a 15.79 per cent increase in net profit.
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| Therefore, on the face of it, it may appear that the net profit grew because of an enhanced trading profit.
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| However, this is not the case. Analysts say that more than 50 per cent of the trading profits come from fee-based income. The net interest income of the bank has also gone up by an impressive 51.24 per cent.
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| This was on the back of a 0.45 per cent decrease in cost of deposits and 0.20 per cent decrease in yield. The net interest margin has increased to touch 3.5 per cent.
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| Analysts' views on business outlook
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| There are mixed opinions about the performance of the company. Some analysts say that the low level of non-performing assets (NPAs) would require lesser provisioning.
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| Additionally, the strong growth in retail assets, even without a home-loan portfolio, is a major positive.
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| However, some other analysts term the rising operating expenses as negative. Says Manish Turakhia, equity fund manager, Gandhi Securities, "The rising operating expenses may mean pressure on the bottomline in the coming quarters, too."
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| The consensus is that the company should end the year with a 20 per cent growth in earnings.
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| Share price and valuations
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| Analysts say that HDFC Bank's valuations are a little stretched. They agree that a bank like HDFC Bank deserves a premium, but are worried about the actual premium that should be assigned to it. At the current price of Rs 276.1 the stock trades at a P/E of 20.34. Analysts say it is on the higher side.
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| Adds Manish Turakhia, "It should be a matter of time before the valuation gap between HDFC Bank and other banks shrinks, especially since public-sector banks are catching up with HDFC Bank in terms of technology and customer orientation. The P/E should come down to 15 within an year."
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| HUGHES SOFTWARE SYSTEMS
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| Non-HNS services and BPO operations drive growth
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| Hughes Software Systems (HSS) performed better than market expectations, posting a sales growth of 20 per cent sequentially.
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| Non-Hughes Network Systems (HNS) services have contributed 58 per cent to total revenues. Other income, which posted a negative growth, has, however, eaten into the profits of the company.
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| Revenues, profits and margins
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The operating margin of the company increased to 26.24 per cent. Operating profit increased by 212.13 per cent to Rs 20.60 crore compared to the same quarter last year. The company
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