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Melstar Shining future

Jun 21, 2000

Melstar Information Technologies is a global IT company having domain expertise in the field of banking, finance, insurance and manufacturing products. The company has proven expertise in developing e-commerce solutions, web applications, IT systems based on client/server technology, object technologies and maintenance of legacy systems. To provide state of the art solutions to its worldwide customers, Melstar has forged number of tie-up with world leaders in information technology. It has tied up with IBM Global Service and Informix for joint software development, Oracle, Linkhand of UK and Singularity of Ireland for product development.

During the year the company has been successful in making a transition towards its software business. The contribution from software sales to total turnover increased to 85% in FY00 compared to 51% in FY99. In the current year the company has entered into several joint ventures and partnerships which will help it to attract excellent business clientele.

Melstar has reported an astounding growth of 72% in its software sales business in the current year. As the company is transforming from the hardware to software solution providing company, the sales from hardware business dropped significantly. Transition to software business has also led to increase in its profit margins.

Year end
March 31 (Rs m)
FY00 FY99 Change
Software Sales 309.4 179.9 72.0%
Other Sales 55.5 171.4 -67.6%
Operating Profit 144.4 26.5 444.9%
Interest 0.0 10.5 -100.0%
Profit before tax 13.1 0.7 1774.3%
Profit after tax 101.4 5.2 1850.0%

Key ratios
Year end March 31 FY00 FY99
Operating profit margins 21.7% 7.3%
Net profit margins 23.6% 1.5%
Cash EPS (Rs) 9.4 1.7
EPS (Rs) 8.4 0.6

The company has very aggressive plans in developing its software business. It targets to have around 13 software development centres (SDCs) in the next 2 years from the current 5 to cater to the technologies like mobile communication and digital media.

Apart from the organic growth from its software products, Melstar also plans to acquire the two companies in the next 15 months to fulfill its target to grow by nearly 100% every year for next three years and reach a turnover of Rs 2 bn with minimum 20% profitability.

De-risking model
Melstar is quite de-risked as far as the geographic and client concentration is concerned. The company is not heavily dependent on the US market and has a broad based client structure. This ensures that revenue from any single customer does not form more than 10-15% of its total revenue.

At the current market price of Rs 152, Melstar is trading at a P/E of 18.2 times its FY00 earnings. The company has comparatively lower valuations than software majors. Melstar will be able to maintain its high financial growth in future since for the next four years, its has substantial order booked for its software development business.

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