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Geometric: About turn

Apr 30, 2001

For the 4QFY01 Geometric has posted a sequential topline growth of 44% in revenues and a significant rise of 306% in net profits. But the highlight of the performance was that the company has managed to improve operating margins from 20% to 42%. This improvement in operating margins is largely due to the companyís growth in revenues. While the topline has grown by a huge 44%, the expenses have grown by only 4%. The company employee costs as a percentage of sales is just 25.8% of revenues, down from 37.5% in 3QFY01. This gives the company some room to hike salaries and yet maintain margins within industry averages. However, considering the downturn in the US economy large salary raisesí in the software industry might not be common as seen previously.

The companyís project group from which it derived 60% of its business grew at 10% sequentially. Geometric earned the remaining 40% of its revenues from the sale of software components and products.

In the area of components, the company during 3QFY01 concluded a significant technology sale to Spatial Corp., a CAD major in the U.S, which contributed revenues in the tune of Rs 46 m to Geometricís topline. The sale is expected to result in additional revenues for the project business of the company. In addition, a number of new orders for the sale of Feature Recognition (that is a proprietary technology from Geometric) and Nestlib Technologies were closed during this quarter. The company has witnessed significant growth in its channel partnersí product revenue inflows, particularly with respect to FeatureWorks and CamWorks during the period. Geometric added 5 new clients for its project business in 4QFY01.

(Rs m) 3QFY01 4QFY01 Change FY00 FY01 Change
Sales 113 162 43.4% 319 449 40.7%
Other Income 3 7 137.7% 15 20 39.9%
Expenditure 90 94 4.7% 229 351 53.1%
Operating Profit (EBDIT) 22 68 208.1% 90 98 9.0%
Operating Profit Margin (%) 19.9% 41.8% 28.1% 21.7%
Interest 0 0 0 0
Depreciation 10 10 3.9% 19 36 88.9%
Profit before Tax 16 65 303.3% 85 82 -3.3%
Tax - - 92# -
Profit after Tax/(Loss) 16 65 303.3% (7) 82 -
Net profit margin (%) 14.4% 39.8% - 18.2%
Extraordinary item - 0.5 213 7.4
Profit after Tax/(Loss) 16 65 306.5% 206 89 -56.8%
Net profit margin (%) 14.2% 40.1% 64.7% 19.9%
Diluted number of shares 5.2 5.2 5.2 5.2
Diluted Earnings per share* 12 50 313.6% -1 16
*(annualised)
P/E (x) 6
# The figure is due to tax on the extraordinary income. Geomteric does not have a tax liablity on account of its normal course of operations.

The year was a roller coaster ride for Geometric. The company had a bad start to the year and was the first Indian company to give a profit warning. Geomtericís topline was not growing. The company was facing some problems with its subsidiary in the US. Immediate corrective action was taken. The management reorganised its sales and marketing functions. Dick Miller, CEO of Geometricís US subsidiary resigned with effect from September 30, and Manu Parpia, MD of Geometric Software, took over.

And then Geometric started its turn around. For the 3QFY01 Geometric posted a QoQ (sequential) growth of 30% in revenues and posted profits once again. For the year FY01 Geometric has posted a growth in revenues of 41%. Compared to a loss of Rs 7 m in FY00 (excl. extra-ordinary items) the company has posted a net profit of Rs 82 m. However, the companyís operating margins have gone down by 640 basis points. This mainly due a 182% increase in marketing costs for the company compared to FY00.

At a current price of Rs 90, the stock is trading at P/E multiple of 6 times its FY01 earnings.


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