Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Geometric: Where to from here? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Feb 21, 2005

    Geometric: Where to from here?

    Geometric Software Solutions (GSS) is one of the niche players in the Indian software industry that has had a good past performance record. The company is focused on the PLM (Product Lifecycle Management) space, and provides innovative products and solutions to the automotive, aerospace and hi-tech industries in the areas of engineering, design, CAD/CAM, CAE and PDM. The main focus of PLM solutions is to help industries manage product lifecycles in the fast-moving competitive environment. The company's presence in the domain of geometry provides it with a competitive advantage in the form of high entry barriers on account of high-levels of technical skill-set requirements.

    A growth story all the way
    GSS has shown a very consistent growth rate over the last 3 years. From FY02 to FY04, the company's sales and profits have grown at CAGR of 30% and 27% respectively. What's more, in the nine month period ended December 2004, GSS' sales have already surpassed its entire FY04 sales, and are in line with the management's estimates of a 35% YoY growth rate for FY05.

    (Rs m) FY02 FY03 Change FY04 Change 9mFY05
    Net sales 625 841 34.6% 1,060 26.0% 1,183
    Operating profit (EBDITA) 144 233 62.2% 289 24.1% 336
    EBDITA margin (%) 23.0% 27.7%   27.3%   28.4%
    Profit after tax/(loss) 129 171 32.7% 208 22.3% 194
    Net profit margin (%) 20.6% 20.3%   19.7%   16.4%
    No. of shares (m) 5.3 5.3   5.4   11.1
    Diluted earnings per share (Rs)* 11.6 15.4   18.8   23.3
    (* annualised)            

    The management has set a target of US$ 100 m in revenues for the company by FY07. In order to achieve this target, the company will have to grow at a CAGR of over 60% for the next three years, which is undoubtedly a highly ambitious target. However, while we shall refrain from making an outright comment on the possibility of the company achieving the target, we are slightly cautious on this front. The management has indicated that it would apply a mix of organic and inorganic growth strategies to achieve his target. A case in point was the company's recent acquisition of TekSoft and Cimtronics, subsidiaries of OnCourse Technologies, for a consideration of US$ 1.75 m.

    Business break-up
    The company divides its revenues into two segments: products and projects. As of now, products do not comprise a major portion of the company's revenues, accounting for a little over 10% of revenues in FY04. It is the projects business that has been growing at a very fast clip, clocking an impressive CAGR of 34% during FY02 and FY04, while the products business has grown at a much more modest CAGR of 7% during the same period.

    (Rs m) FY02 FY03 Change FY04 Change
    Net Sales 98 122 24.6% 112 -8.6%
    EBIT 32 57 75.8% 48 -15.2%
    EBIT margin (%) 33.0% 46.6%   43.3%  
    Net Sales 527 719 36.5% 949 31.9%
    EBIT 259 375 44.8% 463 23.4%
    EBIT margin (%) 49.1% 52.1%   48.8%  

    As can be seen from the table above, the company enjoys high EBIT margins in both its businesses. Contribution from products went down in FY04, on account of the slowdown that the global engineering industry was witnessing in the previous years. Project revenues on the other hand, have registered consistently high growth, and margins have also been healthy. Going forward, as the company increases the focus on development of its products, and also forges new partnerships with global PLM majors, we expect the growth to be much stronger and steadier.

    Partnerships are the key
    GSS has mentioned that partnerships are an extremely important way of growing, not just in terms of scale, but also with reference to -

    1. leveraging the partners' technology to offer superlative technology and industry expertise to offer value-added services to the end-customer,

    2. becoming development partners,

    3. marketing the partner's suite of products and services in India,

    4. collaborating with them to provide solutions to their customers, and

    5. making strategic investments in order to enable the company to acquire greater domain expertise.

    Over the years, the company has been dedicated to building long-term relationships with a view to achieving long-term growth. In this light, GSS has forged partnerships with a number of OEMs like EDS, Matrix One and Dassault Systemes, with whom it has also formed a joint venture called 3D PLM Software, which is a development contractor for Dassault's brands in the marketplace. It has also formed partnerships with major service providers and system integrators such as IBM, HP and UGS PLM Solutions, through whom it provides PLM solutions to large industries all over the world.

    To 'round' it off...
    As indicated above, GSS is a highly focused player in the PLM space, and has been leveraging on its competencies and high skills required to operate in this space. This serves as an entry barrier for potential competitors. Given the steps the company is taking in order to achieve its target of US$ 100 m by FY07, organic and inorganic, as well as its competencies in the PLM space, we feel that it is poised for strong growth going forward.

    At the current price of Rs 460, the stock trades at 19.7 times annualised 9mFY05 earnings. The stock has seen a run-up recently, and is currently at the higher end of the valuation spectrum. However, for investors with a long-term investment horizon, valuations do seem to be reasonable, given the management's vision and the company's growth prospects.



    Equitymaster requests your view! Post a comment on "Geometric: Where to from here?". Click here!


    More Views on News

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    HCL Tech: Ends FY17 on Expected Lines (Quarterly Results Update - Detailed)

    Jun 29, 2017

    Volvo partnership caps a good year for HCL Technologies.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Mar 10, 2017 (Close)


    • Track your investment in GEOMETRIC LTD with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks


    Compare Company With Charts