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Geometric: Forex losses take toll - Views on News from Equitymaster

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Geometric: Forex losses take toll
Jan 22, 2009

Performance summary
  • Topline grows by 7% QoQ during 3QFY09, largely led by the engineering services business (contributes 33% of revenue) that grew by 11% QoQ.
  • Operating margins decline by 5.9% QoQ during the quarter on account of forex losses.
  • Net profits reflect the operating performance and decline by 45% QoQ during the quarter.
  • Adds 7 new clients and 171 employees during the quarter.


Financial performance: A snapshot…
(Rs m) 2QFY09 3QFY09 Change 9mFY08 9mFY09 Change
Sales 1,525 1,631 6.9% 3,594 4,561 26.9%
Expenditure 1,329 1,516 14.1% 3,090 4,148 34.2%
Operating profit (EBITDA) 196 115 -41.6% 503 413 -17.9%
Operating profit margin (%) 12.9% 7.0%   14.0% 9.1%  
Other income (28) 11   47 25 -46.1%
Depreciation 49 50 2.2% 146 149 2.3%
Interest 12 11 -0.6% 49 33 -33.0%
Profit before tax 108 63 -41.2% 356 257 -27.8%
Tax 22 15 -31.0% 33 51 56.8%
Minority interest 40 30 -24.7% 48 75 55.6%
Extraordinary income/(expenses) and prior period adjustments (14) (1)   - 109  
Profit after tax/(loss) 32 18 -44.6% 275 240 -12.8%
Net profit margin (%) 2.1% 1.1%   7.6% 5.3%  
No. of shares (m)         62.1  
Diluted earnings per share (Rs)*         9.0  
P/E ratio (x)*         2.2  
* On a trailing 12-months basis

  • Geometric recorded a 7% QoQ growth in net sales during 3QFY09. This was mainly aided by strong performance from its software and automotive businesses, which grew by 4% QoQ and 11% QoQ respectively. These two segments account for 78% of Geometric’s total revenue.

    Revenue break up by vertical
      2QFY09 3QFY09 Change
      % of revenue Rs m % of revenue Rs m  
    Software ISV* and partners 47% 718 46% 747 4%
    Automotive 31% 477 33% 532 11%
    Agri and construction equipment 12% 178 12% 194 9%
    Industrial & Marine Eng 5% 72 4% 62 -14%
    Others 5% 79 6% 95 19%
    *ISV (independent software vendor)

  • Geometric’s operating margins declined by 5.9% QoQ during 3QFY09. Though the company was able to reduce its employee costs from 64% of total sales in 2QFY09 to 58% in 3QFY09, forex losses of Rs 189 m negatively impacted the operating margins.

  • Geometric added 7 new customers and 171 employees during 3QFY09. The attrition rate declined to 17.1% from 18.7% in 2QFY09.

  • Geometric recorded a 45% QoQ decline in net profits during 3QFY09. This can be attributed to forex losses that the company incurred on account of adverse currency movements.

What to expect?
At the current price of Rs 19, the stock is trading at a multiple 2.2 times its trailing 12-months earning. The management has indicated that that company is facing tremendous pressure on the back of the weak global economic scenario. The company derives a large share of revenue from manufacturing and allied industries, which have been worst hit. Furthermore, the management has indicated that the company’s major customers in the US automotive sector have been impacted due to the ongoing crisis and it is likely that new orders might slow down over the next two quarters.

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