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Trigyn: Bad debts cause bad results

Feb 6, 2001

Trigyn’s 3QFY01 performance is quite dismal compared to 2QFY01. This quarter (3QFY01) it has not been able to show any growth, neither in revenues nor in operating margins. The company has written off Rs 70 m due to bad receivables. On account of these bad debts the net profit has taken a severe hit and the company declared losses. If we do a sequential (quarter-on-quarter, QoQ) comparison revenues have come down by about 4% and the net profits have dipped by 166%. Excluding the write off the company’s net profits would have gone down by 42%. On a YoY basis the company’s revenue has grown by 36.2%. The only figure that has shown growth this quarter is total expenditure that grew by 2.7% QoQ. This has caused the operating margins to dip from 21.7% in 2QFY01 to 16.1% in 3QFY01. Of the bad debts, according to the company, Rs 50 m are due to a dot com that could not pay its bills as it did not get second round of funding. The remaining amount of Rs 20 m is due to bills that have not been paid by a customer. This particular customer according to the company has a record to stretching payments and has had receivables up to 180 days.

(Rs m) 2QFY01 3QFY01 Change
Sales 238 229 -3.8%
Other Income 40 12 -70.3%
Expenditure 187 192 2.7%
Operating Profit (EBDIT) 52 37 -29.0%
Operating Profit Margin (%) 21.7% 16.1%  
Interest 2 2 -19.8%
Depreciation 7 6 -8.3%
Profit before Tax 84 41 -51.4%
Tax 27 8 -70.4%
Extra-ordinary item 0 70  
Profit after Tax/(Loss) 57 -38 -166%
Net profit margin (%) 23.7% -16.4%  
No. of Shares (eoy) (m) 14.8 14.8  
Diluted Earnings per share* 15.2 -  
P/E (at current price) 28 -  

The company plans to control its expenditure and market aggressively to improve its performance. According to the company, the drop in operating margins is due to high SGA (selling and general administration) expenditure. The company plans to counter this by reducing the salaries of top management (who will be given stock options in lieu of salary) and introducing stringent performance standards for marketing group.

Trigyn hived off e-vector, its WAP enabling software into a separate company. The company is expected to gross US $ 6.4 m in its first year of operation. Also, Trigyn is to introduce two new products Apollo (a billing software) and e-CRM software.

On a consolidated basis the company’s revenues have jumped 61% in the 3QFY01. The operating margins for the quarter are 12%. However, this too is not without blips. Here too, Trigyn had to write off Rs 160.9 m on a consolidated basis. End result, the company has suffered a loss.

Trigyn needs to put a very smart risk management system in place. Also, it has to improve its performance. The company has targeted operating margins of 30% by 2QFY02. The main push for growth will come from e-vector, which is a subsidiary. Therefore, the operating margins on a consolidated basis are quite likely to touch the levels indicated by the company.

The stock is trading at a P/E multiple of 84 times its 9 months FY01 annualised earnings. This is quite high compared to its peers in the industry.

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