May 14, 2001|
VisualSoft 4QFY01: How bad?
VisualSoft had surprised the markets, quite unpleasantly, by giving a profit warning. According to the company, its product sales had taken a hit due to the downturn in the US economy. The results for 4QFY01 reveal the extent of the damage.
The company posted a sequential (QoQ, compared to 3QFY01) dip in sales of 15%. The impact on the bottomline was far more severe with net profits plunging by 41% sequentially (excl. extraordinary income). Dip in revenues was mainly due to the product related revenues falling by 39% sequentially. The project revenues showed a meek growth of 10%. Due to the product sales taking a hit the business mix changed dramatically for the company in just one quarter. In 3QFY01 the company had 52% of its revenues coming from products and the rest from projects. In 4QFY01 the share of products dipped to 37%. This significant shift in business mix caused the company’s operating margins to come down to 39.5% for 4QFY01 (from 53.3% in 3QFY01).
The volatility is product sales could indicate two things. Firstly, the company’s products mostly fall into the discretionary category. That means that in case of an IT cost cut these products are the likely candidates to be delayed for the future. Also, the severity of the fall across product categories could be pointing to the fact that the company has not been able to create a strong brand.
|Revenues (Rs m) from
It was very interesting to note that in 4QFY01 VisualSoft’s geographic mix, changed in favour of the US compared to 3QFY01. The US contribution to revenues rose to 70% from 66% in 3QFY01. This is quite surprising, as most of the companies have reduced the share of revenues from the US in wake of the economic downturn there. Incidentally, Visualsoft too had stated that its product sales were lower due to the downturn in the US economy. But it is the revenues from Europe that seem to have taken a greater hit. Sequentially, the revenues from the US have come down by 11% but the revenues from Europe too have suffered by 28%. This again could point to the fact that some of the company’s products seem to be facing problems for reasons other than the US economic slowdown.
In the days receivables the company has managed to bring the figure under 90 days for services related revenues. However, for the product related revenues the numbers have worsened. An amount of Rs 17 m has gone to a period of greater than 180 days. In the range of 90 to 180 days the company has now receivables upto Rs 88 m. Of the total receivables 75% are in the range of 90 days, 21% are in the range of 90 to 180 days and the rest have days receivables exceeding 180 days.
The products business of the company does carry a high element of risk. To mitigate this company now needs to create a strong brand and step up its marketing efforts. In the projects business the concern is the high client concentration. 4 clients account for more than 5% of the revenues. The company now has 35 clients for the projects division, with five added during the last quarter. The company’s also needs to build a base of projects revenues, which can offset the element of risk that is inherent with the products business.
At a current market price of Rs 179, the stock is trading at a P/E multiple of 6 times its FY01 earnings.
More Views on News
Aug 2, 2017
A better than expected turnaround in performance results in a change in view.
Jul 27, 2017
Digital services drive growth for Wipro in 1QFY18.
Jul 14, 2017
Infosys starts FY18 on an encouraging note with a stable performance.
Jul 14, 2017
TCS starts FY18 decently despite an adverse currency impact.
Jun 29, 2017
Volvo partnership caps a good year for HCL Technologies.
More Views on News
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 10, 2017
Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407