Melstar : Needs better operations - Views on News from Equitymaster

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Melstar : Needs better operations

Jan 22, 2001

Melstar has shown a positive 22% growth in revenues for the 3QFY01. But its operating margins have come down from 15.5% in 2QFY01 to 14% in 3QFY01. This, according to the company, is due to increased personnel costs on account of increased projects in the US and Europe.

(Rs m) 2QFY01 3QFY01 Change
Sales 159 194 22.1%
Other Income 3 1 -70.0%
Expenditure 135 166 23.1%
Operating Profit (EBDIT) 25 28 12.0%
Operating Profit Margin (%) 15.5% 14.4%  
Interest 0 -1  
Depreciation 5 5 -2.0%
Profit before Tax 22 25 15.5%
Tax - 1  
Profit after Tax/(Loss) 22.3 24 8.1%
Net profit margin (%) 14.0% 12.4%  
Diluted number of shares 12.2 12.2  
Diluted Earnings per share* 7.3 7.9  
*(annualised)      

The second factor contributing to the increased expenditure is the expansion of the management teams in the region. One of the possible scenarios could be when the income is realised, the operating margins for Melstar may jump.

Considering the industry standards of about 33% and the fact that Melstar has completed about a decade in the IT business its operating margins are quite low. The operating margins in 3QFY00 was about 20%. The company has been focusing on the financial sector and technology businesses.

At a current market priceof Rs 57 Rs the stock is trading at a P/E multiple of 4 time its 3QFY01 annualised earnings.

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