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Pentasoft: Average performance - Views on News from Equitymaster

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Pentasoft: Average performance

Apr 7, 2001

Pentasoft Technologies Limited has clocked increase in sales by 44% for FY01 compared to FY00. The net profits increased by a figure of 52%. This includes a 107% increase in other income excluding which the growth in net profit growth would be in the range of 44%. The highlight of the performance is the 500 plus basis point increase in operating margins.

(Rs m) 3QFY01 4QFY01 Change FY00 FY01 Change
Sales 1,493 1,547 3.6% 4,044 5,835 44.3%
Other Income 38 35 -6.8% 65 134 107.8%
Expenditure 947 1,029 8.6% 2,827 3,768 33.3%
Operating Profit (EBDIT) 546 518 -5.1% 1,217 2,067 69.8%
Operating Profit Margin (%) 36.6% 33.5%   30.1% 35.4%  
Interest 13 11 -15.2% 20 43 114.2%
Depreciation 166 167 0.7% 411 592 44.0%
Amortisation of Goodwill 75 75 0.1% - 300 0.0%
Profit before Tax 330 300 -9.0% 851 1,266 48.9%
Tax - -   21 -  
Profit after Tax/(Loss) 330 300 -9.0% 830 1,266 52.6%
Net profit margin (%) 22.1% 19.4%   20.5% 21.7%  
Net profit margin (%)** 27.1% 24.3%   20.5% 26.8%  
No. of Shares (eoy) 18.1 18.1   18.1 18.1  
Earnings per share* 72.9 66.3 -9.0% 45.8 70.0 52.6%
P/E (x) 1.0 1.1   1.6 1.0  
**(excl amortization of goodwill)

However, on a Quarter on Quarter (QoQ) basis the 4QFY01 growth (compared 3QFY01) in revenues is a mere 3.6% and the operating margins have come down by 290 basis points. Therefore, 4QFY01 was certainly not the best quarter for the company for the fiscal FY01. But the performance is better than the flat growth it had shown in its topline (QoQ) for 3QFY01. The enterprise division of the company accounted for 69% of the revenues. The other contributors were Engineering Services 18% and the remaining came from Education & Training, which accounted for 13% of the revenues.

(Rs m) 4QFY00 4QFY01 Change
Sales 1,207 1,547 28.2%
Other Income 34 35 2.7%
Expenditure 811 1,029 26.9%
Operating Profit (EBDIT) 396 518 30.8%
Operating Profit Margin (%) 32.8% 33.5% 2.1%
Interest 0 11  
Depreciation 154 167 8.8%
Amortisation of Goodwill 0 75  
Profit before Tax 277 300 8.5%
Tax 0 0  
Profit after Tax/(Loss) 277 300 8.5%
Net profit margin (%) 22.9% 19.4%  
Net profit margin (%)** 22.9% 24.3%  
No. of Shares (eoy) 18.1 18.1  
Earnings per share* 61.1 66.3  
P/E (x) 1.18 1.08  
**(excl amortization of goodwill)

Currently at a market price of Rs 71 the stock is trading at a P/E multiple of 1 time its FY01 earnings. Considering the growth rates and the operating margins Pentasoft earns the valuation is very low. This could be accorded to the negative sentiment towards the technology sector. Top rung companies like Infosys have shown a 15% plus QoQ revenue growth in 3QFY01. This is in contrast to Pentasoft’s dwindling growth. These factors together have put pressure on the valuation of the company.

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