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Global Tele: Dull show

Apr 19, 2002

GTL Limited (erstwhile Global Tele) reported a 35% decline in topline for FY02. The net profits have declined by a steep 74% including extraordinary income of Rs 1,952 m in FY02. Excluding the extraordinary income the bottomline has declined by 57%, as last years extraordinary income was higher than in FY02. Falling sales in certain business segments have adversely impacted the financials of the company. For 4QFY02, the topline growth was flat on a sequential basis. However, the net profits grew by 9% sequentially. The signs of trouble from the exports markets were evident from the sequential decline of 44% from the export markets.

(Rs m)3QFY024QFY02ChangeFY01FY02Change
Sales 1,370 1,369 -0.1%8,148 5,328 -34.6%
Other Income 97 92 -5.6%538 508 -5.7%
Expenditure 965 951 -1.5%5,308 3,856 -27.4%
Operating Profit (EBDIT)405 418 3.2%2,840 1,472 -48.2%
Operating Profit Margin (%)29.6%30.6% 34.9%27.6% 
Interest - -   - -  
Depreciation213 226 6.3%789 886 12.3%
Profit before Tax290 284 -2.0%2,590 1,093 -57.8%
Tax 76 (32)-141.7%165 53 -67.8%
Extraordinary Items 74 - -100.0%1,952 74 -96.2%
Profit after Tax/(Loss)288 316 9.7%4,376 1,114 -74.5%
Net profit margin (%)21.0%23.0% 53.7%20.9% 
Diluted number of shares70.7 70.7  70.7 70.7  
Diluted Earnings per share*16.3 17.8  61.9 15.7  
P/E (x) 7.1  8.0 

While the companies network engineering (NE) and customer relationship management (call centre) businesses witnessed growth, the revenues from software services and enterprise network services (ENS) showed declining sales trend. GTL also reduced its focus from the IPR (intellectual property rights) segment. The business of this segment is to sell software licenses and derivatives. The licensing business had been major revenue grosser for GTL in FY01 (20% of the revenues). The decline in revenues from this business has impacted the profitability and revenue growth. There were concerns about the licensing business, considering the fact that the company does not have much of expertise in software development. In case of software becoming obsolete, the sales could fall sharply.

GTL : Revenue break up
Business group% contribution
Software and Internet Group26.3%
E - Business Infrastructure23.3%
Enterprise Networks17.9%
Network Engineering (NE)19.5%

The company expects the revenues for FY03 to grow by 7.5% to 10%. We expect a marginal improvement in operating margins on the back of increased contribution to revenues from the CRM business. At the current market price of Rs 126, the stock is trading at a P/E multiple of 8x its FY02 annualised earnings. The stock price is likely to remain range bound in the near future due to lack of a trigger.

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