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BFL-Mphasis: Unimpressive

Jan 24, 2001

BFL-Mphasis 3QFY01 results are lacklusture. The QoQ growth in revenues was 5% while the rise in net profits is 27%. On a YoY basis the revenues have grown by 41%. Compared to losses of Rs 27 m in the same quarter last year company has posted a profit of Rs 52 m in 3QFY01. The improvement in margins is due to decline in software development costs from 70% of revenues in the 2QFY01 to 66% of the revenues in 3QFY01. The administrative and other expenses have gone up from 11% of revenues to 13% of revenues. On a nine months basis the operating margin of the company is 17%. There has to be a conscious effort to improve the operating margin figure.

According, to the company, the work for five new customer that includes Morgan Stanley Dean Writer, one of the big five consultants and large Indian bank started this quarter. Therefore, we might see an improvement in the margins in the near future. The concern regarding topline growth is largely unaddressed. A QoQ figure of 5% is way below. Digital that has similar size (Rs 405 m in 2QFY01) this quarter clocked a significant 30% rise in revenues. BFL's QoQ rise in revenues for 2QFY01 was just 1.2%. The company has to look at growing more agressively.

(Rs m) 2QFY01 3QFY01 Change
Sales 401 421 5.0%
Other Income 12 8 -29.8%
Expenditure 333 337 1.2%
Operating Profit (EBDIT) 68 84 23.4%
Operating Profit Margin (%) 16.9% 19.9%
Interest 1 1 -6.7%
Depreciation 36 36 0.6%
Profit before Tax 43 55 28.4%
Tax 2 3 58.4%
Profit after Tax/(Loss) 41 52 27.0%
Net profit margin (%) 10.3% 12.4%
Diluted number of shares 15.8 15.8
Diluted Earnings per share* 10.5 13.2
P/E 43.8 34.9

At a market price of Rs 460, the stock is trading at a P/E multiple of 34.8 times its 3QFY01 annualised earnings.

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