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Hughes Software: Beats expectations

Jan 16, 2002

Hughes Software has posted a sequential growth of 130% in net profits for 3QFY02. This is above market expectations. The total income has also increased by 9.5% sequentially. Though full details are not yet available, but the company seems to have got a hold on the problems plaguing product sales. In 2QFY02 Hughes had posted very disappointing financials due to a sequential 59% drop in product sales. On a YoY basis, the total income has grown by 6.7% and the net profits have declined by 21%. This could indicate that while sales seem to be picking up margins are under pressure.

(Rs m)2QFY023QFY02Change
Sales536 599 11.8%
Other Income3830-21.1%
Operating Profit (EBDIT)93188102.2%
Operating Profit Margin (%)17.4%31.4% 
Interest -  - 
Profit before Tax78163109.0%
Profit after Tax/(Loss)63145130.2%
Net profit margin (%)11.8%24.2% 
No. of Shares (eoy) (m)33.333.3 
Diluted Earnings per share*7.617.4 
P/E (x)  17.5  

The product sales have shown a 97% sequential growth. This has caused the contribution of products sales to jump from 13% in 2QFY02 to 23%. The revenues from HNS have shown a sequential growth of 11%. However, the revenues from services to non-HNS clients continue to show weakness. For 3QFY02, sales declined by 15% as compared to a 6% decline in 2QFY02.

The increased contribution from product sales has caused the company’s operating margins to jump. Also, the company has managed to cut costs sharply. The employee costs have shown a sequential 10% decline.

% Contribution to revenues2QFY023QFY02
HNS Services46%46%
Non-HNS Serivces41%31%

However the management has once again revised the guidance for the growth in revenues downwards from an earlier guidance of 25%-35% to 17%-19%. This could adversely impact the valuations of the company.

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