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Silverline: Back to basics

Apr 15, 2002

Silverline’s CEO Mr. Ravi Singh resigned recently. According to the official communication from India’s eighth largest software exporter, it was shifting its senior management from the US to India. To facilitate this shift Mr. Singh has remitted his office. Silverline believes that managing and driving its business from India will enable it to ‘more effectively position its services and better manage its costs’. These ideally should translate into better profitability. However, we are not at all comfortable with Mr. Singh’s departure.

Mr. Singh was introduced to the Analyst community in August 2001 as co-CEO. The theme of the analyst meet was ‘recasting image’. The company’s tactics in the past had tainted its image. Therefore, Mr. Singh was to take the helm and work towards narrowing the divergence in perception. The then incumbent CEO, Mr. Shankar Iyer was to move out of the company.

The transparency in reporting had improved with the results that were declared for 1QFY02. The company gave a clear break-up between the revenues coming from the solutions business (64% of total revenues) and the low-end body shopping (staffing) that contributed the remaining (36%). The results declared for 2QFY02 (quarter ended September 30, 2001), though came in a bit late around 21st November, but were consistent in terms of transparency.

However, post December 2001 trouble began. Silverline has not declared the numbers for the consolidated entity till date. (Silverline Ltd.’s performance for 3QFY02).

(Rs m) FY01 1QFY02 2QFY02 3QFY02
Conslidated revenues (A) 7,071 2,138 1,875 -
Stand alone revenues (B) 2,727 556 442 404
B/A (%) 39% 26% 24% -

Our concerns are that with the departure of Mr. Ravi Singh the company may go back to its traditional way of doing things. In the past Silverline sold its US subsidiary to Subra Holdings Inc., USA (a company promoted by the directors of Silverline) and reacquired the same. In this transaction Subra Holdings made capital gain of Rs 2 bn (US$ 36 m).

Undoubtedly the depressed valuations of the stock are due to the negative perception regarding the company. At the current market price of Rs 46 the stock is trading at a P/E multiple of 7x its 9mFY02 annualised earnings (standalone numbers). The company due to its low valuations and big size will in due course of time attract some institutional or operator interest and valuations might run up sharply. However, retail investors would be better off if they steered clear of the stock.

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