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Digital 3QFY02: Strong growth - Views on News from Equitymaster
 
 
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  • Jan 16, 2002

    Digital 3QFY02: Strong growth

    Digital has clocked an 8% sequential growth in revenues and a jump of 11% in bottom line for 3QFY02 beating all expectations. This translates to a sharp 66% growth in topline and a jump of 49% in net profits, on a YoY basis. The most positive aspect of the result is that the company has managed to improve its operating margins despite the tough business environment.

    (Rs m) 2QFY02 3QFY02 Change
    Sales 807 873 8.2%
    Other Income 29 25 -12.4%
    Expenditure 559 578 3.5%
    Operating Profit (EBDIT) 248 295 18.8%
    Operating Profit Margin (%) 30.7% 33.7%  
    Interest 0 0 33.3%
    Depreciation 26 31 17.3%
    Profit before Tax 251 289 15.3%
    Tax 28 43 52.9%
    Profit after Tax/(Loss) 223 247 10.6%
    Net profit margin (%) 27.6% 28.3%  
    No. of Shares (eoy) (m) 32.7 32.7  
    Diluted Earnings per share* 27.3 30.2  
    P/E (x)   17.7  
    *(annualised)      

    At the current market price of Rs 535, the stock is trading at a P/E multiple of 18x its 3QFY02 annualised earnings. The company had given a guidance of 50% growth in revenues for FY02. This would have translated to a target of Rs 2,764 m. In 9m FY02 the company has already touched Rs 2,383 m. This means if the company has a flat fourth quarter it will end up with a 77% growth in topline. The valuations are likely to see an improvement on the back of the strong quarterly performance.

    The client concentration has not changed significantly with Compaq contributing to 85% of the revenues. Non-Compaq clients contributed the remaining 15%. However, the revenues from Compaq grew by 8% sequentially on a far higher base as compared to the revenues from non-Compaq clients that grew at a similar rate. The low rate of growth for Non-Compaq clients could be due to the tough business environment the company is facing. The management has reported of postponement of projects, which was a consequence of weak business sentiment post Sep 11.

    US continued to dominate the geographic mix of revenues, with a contribution of 74%. This was down from 77% in 2QFY02, due to a weak growth from the region of 4% sequentially. Revenues from Europe jumped by 31% sequentially. Consequently, the contribution to revenues increased from 19% in 2QFY02 to 23%. Asia Pacific region saw revenues decline by 8% sequentially, contributing 4% to the revenues.

    Revenues from e-Applications, telecom and ATG service groups declined sequentially. Systems engineering and e-Infrastructure service groups saw strong growth in revenues. However, the growth rates for 3QFY02 were far subdued as compared to 2QFY02.

    Service offerings 2QFY02 3QFY02  
      % of revenues Rs m % of revenues Rs m Change
    eApplications 44.0% 384 42.0% 366 -4.7%
    Systems Engineering 18.0% 157 20.0% 179 13.9%
    Enterprise Solutions 22.0% 192 23.0% 197 2.6%
    eInfrastructure 11.0% 96 12.0% 106 10.4%
    Telecom 4.0% 35 2.0% 16 -54.2%
    Advanced Technology Group (ATG) 1.0% 9 1.0% 5 -42.7%
    Total   873   869  

    At the current market price of Rs 535, the stock is trading at a P/E multiple of 18x its 3QFY02 annualised earnings. The company had given a guidance of 50% growth in revenues for FY02. This would have translated to a target of Rs 2,764 m. In 9m FY02 the company has already touched Rs 2,383 m. This means if the company has a flat fourth quarter it will end up with a 77% growth in topline. The valuations are likely to see an improvement on the back of the strong quarterly performance.

     

     

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