Software 4QFY01: Boys to Men - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Software 4QFY01: Boys to Men

May 7, 2001

Before the fourth quarter results were declared the million dollar question was would the Indian software majors take a hit due to the downturn in the US economy? Lot of theories were flying around. One said that considering the miniscule market share Indian companies had, it was quite unlikely that they would be affected by the slowdown. American companies would try to improve operational efficiencies by becoming e-enabled. This would benefit Indian software companies. Another set said that the first thing a company would do during tough times would be to cut costs and this would start with areas on which the company had the least amount of control like software development being done in India.

And 4QFY01 results have laid to rest all speculations. Indian software companies took a hit. And the area that was worst hit was e-commerce. The myth that companies would increasingly spend of e-commerce to cut down on logistic costs was broken. Due to uncertainty in the economic environment the clients were not experimenting with new technologies. The only market that gave a steady stream of income was that of legacy systems.

Net sales growth
  QoQ YoY
Infosy 4.6% 102.5%
Wipro* 7.7% -
Satyam 18.0% 87.9%
Hughes 10.1% 86.0%
HCL Tech 1.7% 85.0%
VisualSoft -15.2% 54.5%
*numbers for Global IT division only

Infy managed to post a meek QoQ growth (compared to 3QFY01) as it saw revenues from the areas of e-commerce and telecom taking a dip. Satyam on the other had managed to offset the loss of business in the area of e-commerce by increased business in legacy systems. Wipro was one of the few majors that actually managed to show an increase in revenues from e-commerce.

VisualSoft that had earlier given a profit warning did better than expected. But the company has taken a hit as far as product sales are concerned. Sequentially the product sales have dropped by 2%. Obviously the implication is that these products are not mission critical. They might be used as add ons to improve operations and thus, in a bleak environment when a client had to cut costs they were the most suitable candidates.

Similar was the fate of companies that have been more inclined towards enterprise application software. The reason these companies could have taken a greater hit is that the software these companies make helps in improving operations that have been for years being done without the software. Therefore, the most important lesson here is that software is a means to an end and when bad times come like a tough economic environment the software can wait. Even Wipro’s enterprise solutions division showed a negative growth sequentially.

Net profit growth
  QoQ YoY
Infosy 9.1% 111.2%
Wipro 15.2% 151.0%
Satyam 27.2% 164.3%
Hughes 20.1% 84.0%
HCL Tech (3QFY01) -2.0% 117.5%
VisualSoft -40.6% 38.8%

What was heartening to note was the strong performance by all the technology-focused companies, HCL Technologies, Wipro (Global IT division) and Hughes Software. All these companies seemed unaffected by the slowdown. HCL Tech and Wipro grew strongly based on the growth from the embedded systems area (Infosys too has shown a 43% sequential growth in this area). These companies despite working on recent technologies due to the criticality of the projects they were working on, managed to buck the slowdown. All these companies essentially service the technology (telecommunication, networking and embedded systems) domain. The only way their clients can stay ahead in the race is by continuously improving existing technologies. This could be a reason that the tech-focused companies were cushioned from the impact of the slowdown.

Operating Margins
  3QFY01 4QFY01
Infosys 38.9% 41.1%
Wipro* 35.0% 35.0%
Satyam 37.8% 37.3%
Hughes 35.7% 41.9%
HCL Tech 52.1% 53.3%
VisualSoft 51.0% 35.7%
*numbers for Global IT division only

Another very interesting number to look at would be movement of operating margins compared to the pervious quarter. This would definitely separate the boys fro the men. Amongst the major software companies only Visualsoft and Satyam saw a dip in operating margins rest either managed to hold or improved the figure. VisualSoft saw a dip in operating margins as its high margins business of software products took a severe hit. Satyam might have seen the marginal drop in operating margins due to increased contribution of legacy systems to its portfolio. This area is not so profitable as the work is mainly of maintenance in nature.

Infy managed to improve operating margins despite a fall in utilization rates. This is an indication of the company’s brand strength. Hughes managed an amazing 600 plus basis point increase in operating margins. This could be due to the increasing contribution of products to its portfolio.

When the supply demand equation was skewed in favour of the software companies, all the companies posted amazing numbers. But with first speed breaker the men are firmly on boat but the boys are showing signs of falling.

Equitymaster requests your view! Post a comment on "Software 4QFY01: Boys to Men". Click here!

  

More Views on News

If You had Invested Rs 1 Lakh in TCS in 2011, this is how Much You Would have Today (Views On News)

Nov 30, 2021

Did TCS perform better than the market and its peers?

India's Top 4 IT Companies are Struggling. Here's Why... (Views On News)

Oct 22, 2021

As attrition rates are unbelievably high, top Indian IT companies are going for big-ticket raises, and much more hiring this year.

Infosys had an Exceptional Quarter Buoyed by Huge Deal Wins. Revenue Guidance Boosts Stock (Views On News)

Oct 14, 2021

Infosys raised its forecast for annual revenue growth to 16.5-17.5% from the earlier 14-16%, predicted in July 2021.

Info Edge: The Anatomy of an Indian Internet Behemoth (Views On News)

Oct 2, 2021

Info Edge is very popular in the Indian startup ecosystem due to its active participation in funding events.

This Indian Company is Tapping into the Huge Autonomous Driving Opportunity (Views On News)

Sep 14, 2021

Despite many challenges, Indian companies and startups have not shied away from entering this space.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

How to Find Your Next 10-Bagger in this Market (Profit Hunter)

Nov 19, 2021

The #1 make or break factor in your portfolio you shouldn't ignore.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE IT


Dec 2, 2021 01:05 PM

S&P BSE IT 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS