X

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.
Digital: The going gets tough? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Mar 30, 2001

    Digital: The going gets tough?

    Digital has been one of the growth engines that the IT sector in India has been riding high on. It was uniquely poised when it entered the software arena. It has been in the hardware business for quite sometime and was recognized as a very strong brand in the markets. Due to this very reason the company did not change its logo when it changed its business.

    Digital: Growth engine
      1QFY01 2QFY01 3QFY01
    Revenue (growth QoQ) 54.6% 41.4% 30.0%
    Operating margins 16.40% 25.10% 35.40%
    Net margins 20.20% 33.20% 31.50%
    EPS (growth QoQ) 257.2% 131.0% 23.8%

    So when the company entered the new business so closely related to its previous area of interest the company not only inherited a strong brand name but also a strong knowledge about the market in terms of requirements and clients. Compaq was the major source of its income and continues to be so with more than 85% of the business coming from Compaq.

    With a brilliant team at the helm the company started to grow fast leveraging on its relationship with Compaq. The company acquired new clients and has been looking at decreasing it dependence on Compaq by acquiring new customers. The sequential growth for Non-Compaq business revenues for the 3QFY01 was 66% compared to the growth in Compaq revenues, which was 26%.

    On March 15, 2001, Compaq lowered its earnings outlook for the first quarter of FY2001 to US$ 0.12 from US$ 0.14 per share, essentially flat with the first fiscal quarter of FY2000. The company was affected due the tightening of tech spending by the companies in the US. Compaq’s revenues for the FY01 were US $ 42 bn (Rs 1,953 bn). Therefore, the business that it gives to Digital is not even 0.1% of its revenues. Digital is implementing supplying chain management solutions for Compaq in the US and SAP in Europe. The areas would no doubt help Compaq to reduce costs and improve operating margins. Therefore, the probability of Compaq cutting down on these businesses seems to be quite low.

    Certain sections of the press have reported that Digital is seeing elongation in sales cycles. However, the company has managed to sustain the momentum in client additions. Also the concerns expressed include the Canadian hi-tech giant Nortel Networks Corp, being one of the top clients of Digital. The size of business that Nortel out sources to Digital is miniscule compared to Nortel’s size.

    This news seems to be bad enough for the apprehensive to press the panic button. But as always the tough times will separate the boys from the men. In a scenario where companies that are clients to Digital are facing prospects of lower revenues, elongation of its sales cycle is a natural consequence. The prospective and existing clients would also take a hard look at the work being done before spending precious dollars on IT projects. Therefore, those companies that can present a value proposition will have a piece of the shirking pie. Is Digital up to it? At least it seems to have managed more clients in the bleak environment and that could be an indication of things to come.

    At a current market price of Rs 447, the stock is trading at a P/E multiple of 22 times its 3QFY01 annualised earnings.

     

     

    Equitymaster requests your view! Post a comment on "Digital: The going gets tough?". 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

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    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.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    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

    TRACK DIGITAL GLO.

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

    MARKET STATS