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DSQ Software: Cutting costs

Feb 19, 2001

DSQ has recorded a topline growth of 58% in topline and 112% growth in net profits for the financial year ended December 2000 (18 months). The highlight of the performance is the significant improvement in the operating margins that have risen by a significant 380 basis points. The improvement in operating margins came from a cut in other expenses, which dropped from 24% of revenues to 21% of revenues. The employee costs meanwhile, have remained the same at 40% of the revenues.

The jump in net profits of 112% was despite a 100% jump in depreciation figures. However, the factors that contributed to the increase in net income were the increase in other income and a drop in finance charges.

On a Quarter on Quarter (QoQ) basis the topline grew by a mere 13% way below industry performance for the December quarter. However, there was a significant improvement in operating margins. The operating margins for the quarter ended December stood at 46% up from 37% in the quarter ended September. This is amongst the best in the industry. Very few product-based companies like Visualsoft have operating margins in this region. The QoQ increase in net profits was 18%.

(Rs m) Year ended
June 99
(15 months)
June 99 figures
adjusted for 18 months
(multiplier of 1.2)
Year ended
December 2000
(18 months)
Change
Sales 2755 3,306 5,216 57.8%
Other Income 10 11 70 509.6%
Expenditure 1780 2,135 3,169 48.4%
Operating Profit (EBDIT) 975 1,170 2,047 74.9%
Operating Profit Margin (%) 35.4% 35.4% 39.2%  
Interest 186 223 105 -53.1%
Depreciation 300 360 743 106.8%
Profit before Tax 499 599 1269 111.7%
Tax 0 0 0  
Provision for contingencies 241 289 0  
Profit after Tax/(Loss) 258 310 1269 309.3%
Net profit margin (%) 9.4% 9.4% 24.3%  
No. of Shares (eoy) (m) 20.3 20.3 30.6  
Diluted number of shares 30.6 30.6 30.6  
Diluted Earnings per share* 6.8   27.7  
*(annualised)        
P/E (at current price) 62   15  

The company added 8 new clients in the quarter ended December. This includes oil major Exxon Mobil and Shell. The other accounts added include GE-Singapore, Bank of Kuwait and Bank of Muscat.

At a current market price of Rs 422, the stock is trading at a P/e multiple of 15 times its FY01 annualised earnings. The P/e multiple is lower than its contemporaries in the software sector. But that is probably because the company’s growth both in topline and bottomline is a far cry from industry standards.


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