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Software: 3QFY01 A success story

Jan 29, 2001

As expected the software majors have shown brilliant performance in the 3QFY01. But the question is who was the best? It is a difficult question as the benchmark for evaluation differs according to perceptions. If we look at the top line growth on a sequential basis Visualsoft made up for its disappointing performance in the 2QFY01 with a huge 35.8% sequential growth. Hughes and Visualsoft both have the advantage of having a smaller revenues base compared to the majors.

  Net sales (growth)
  QoQ YoY
Infosys 20.4% 137.2%
Wipro 4.5% 35.7%
Satyam 20.2% 84.4%
Hughes Software 26.9% 86.0%
HCL Tech 18.3% 108.0%
Visualsoft 35.8% 125.0%

E-commerce drove the growth for Infosys and Satyam, whereas Wipro’s focus is shifting to technology. Visualsoft grew on back of excellent performance of its products. Its revenue mix changed marginally in favour of products (51.7% of revenues).

  Net profits (growth)
  QoQ YoY
Infosys* 8.0% 125.4%
Wipro 22.6% **325.7%
Satyam 30.7% 142%
Hughes Software 40.0% 28.0%
HCL Tech 28.2% 175.7%
Visualsoft 36.5% 175.2%
*Considering extra ordinary write off, excluding which the figure would be 16.5% and 143.1%
**Considering extra ordinary losses in the previous year, excluding which the figure would be 120%

The write off for an investment of Rs 130.8 m hit Infosys’ bottomlines which showed just 8% growth. The robust growth in net profit, on a QoQ basis, figures was led by Hughes despite a drop of 20% in other income figures. A general trend seen was that all the companies showed a drop in the other income figure, which figure had shot up last quarter due to forex fluctuations. Only HCL Tech showed a significant 336% growth in other income, which is to due its business model whereby it aims to grow through joint ventures and investments. Considering the fact that all the companies have shown strong growth in net profits, despite the drop in other income, is an indication of the sector’s robust performance in the third quarter.

But finally, Wipro stole the show with a significant improvement in its operating margins. Of course this is due to the fact that the contribution of software to its business portfolio is increasing. Operating margin for the Global services IT division was 35%. This gives an indication of the company’s bargaining power as the rise in billing rates drove the increase in operating margins.

  Operating margins
  2QFY01 3QFY01
Infosys 39.5% 40.5%
Wipro 24.2% 29.1%
Satyam 34.9% 37.8%
Hughes Software 33.4% 35.7%
HCL Tech 50.2% 52.1%
Visualsoft 51.1% 53.3%

Visualsoft recorded the highest operating margins. It will be interesting to see if the company can improve it’s operating margins any further. The possibility is strong considering the fact that the company has a huge infrastructure that is yet to be fully utilized. Also, its products are slowly being recognised for quality and reliability.

Hughes too is slowly increasing the contribution of products in its portfolio. But this quarter its efforts were concentrated on de-risking business from parent Hughes Network Systems (HNS).

The sector saw massive recruitment across the board. This certainly gives an indication that similar performance will continue in the future, for sometime at least.

Who was the best? Take your pick.

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