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Geometric: Dismal performance - Views on News from Equitymaster

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Geometric: Dismal performance
Apr 28, 2009

Performance summary
  • Topline grows by 23% YoY during FY09, declines by 13% QoQ for 4QFY09.
  • Operating margins decline by 8.4% YoY during the fiscal mainly on account of forex losses. The company records an operating loss during the fourth quarter.
  • Net profits reflect the operating performance and decline by 90% YoY during the fiscal.
  • Adds 55 new clients during the fiscal. Attrition rate down to 9.2% as against 17.1% during the previous quarter.


Financial performance: A snapshot…
(Rs m) 3QFY09 4QFY09 Change FY08 FY09 Change
Sales 1,631 1,420 -13.0% 4,858 5,981 23.1%
Expenditure 1,516 1,532 1.0% 4,207 5,680 35.0%
Operating profit (EBITDA) 115 (113) -198.2% 652 301 -53.8%
Operating profit margin (%) 7.0% -7.9%   13.4% 5.0%  
Other income 11 4   45 29 -35.2%
Depreciation 50 60 18.3% 198 209 5.6%
Interest 11 16 35.9% 57 48 -15.3%
Profit before tax 63 (184) -390.3% 442 73 -83.4%
Tax 15 7 -52.6% 66 59 -11.4%
Minority interest 30 19 -36.6% 55 94 71.6%
Extraordinary income/(expenses) and prior period adjustments (1) 5   - 114  
Profit after tax/(loss) 18 (205)   321 34 -89.3%
Net profit margin (%) 1.1% -14.5%   6.6% 0.6%  
No. of shares (m)       62.1 62.1  
Diluted earnings per share (Rs)         0.6  
P/E ratio (x)         34.3  

What has driven performance in FY09?
  • Geometric recorded a 23% YoY growth in net sales during FY09. This was mainly aided by strong performance from its software and automotive businesses. Despite the economic slowdown and growing problems in the auto sector, the company was able to grow the automotive business’ revenues by 28% YoY during the fiscal. The software business also registered healthy growth of 15% YoY. These two segments account for 80% of the company’s total revenue.

    Revenue break up by vertical
      FY08 FY09  
      % of revenue Rs m % of revenue Rs m Change
    Software ISV* and partners 51.1% 2,483 47.7% 2,853 14.9%
    Automotive 30.3% 1,472 31.5% 1,884 28.0%
    Agri and construction equipment 10.2% 496 11.0% 658 32.8%
    Industrial & Marine Eng 4.2% 204 4.5% 269 31.9%
    Others 4.2% 204 5.3% 317 55.3%
    *ISV (independent software vendor)

  • Geometric’s operating margins declined by a massive 8.4% YoY during FY09. Forex losses of Rs 474 m badly hit the company’s operating margins. Furthermore, one time employee retrenchment cost of around US$ 23 m also dented the margins.

  • Geometric added 55 new customers during the fiscal. On the employee front, the company retrenched around 140 employees during 4QFY09. Its employee strength stood at 2,936 at the end of March 2009. The attrition rate declined to 9.2% from 17.1% in 3QFY09.

  • Geometric recorded a 90% YoY decline in net profits during FY09. This can be attributed to forex losses that the company incurred on account of adverse currency movements, one-time employee retrenchment costs in the fourth quarter, and higher provision for doubtful debts. It may be noted that during the fiscal, the company sold a part of its immovable property which includes land, building and other movable assets situated at Pune for a consideration of Rs 315 m. The profit on sale of these assets (net of taxes) has been included under extraordinary items.

What to expect?
At the current price of Rs 19, the stock is trading at a multiple 34.3 times its trailing 12-months earning which is very expensive as compared to its peers, though is on account of a severe drop in the ‘E’ (earnings per share). The management has indicated that that company is facing tremendous pressure on the back of weak global economic scenario. The company derives a large share of revenue from manufacturing and allied industries, which have been the worst hit. Furthermore, the management has indicated that the company’s major customers in the US automotive sector have ramped down their businesses, which has negatively impacted its topline.

Geometric is also witnessing tremendous pressure on the pricing front. The management indicated in its conference call that going forward the company is going to consciously ramp down unproductive businesses. It also indicated the company will tighten its grip on costs front and would contain the same to improve margins.

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