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Hughes Software : Mixed performance - Views on News from Equitymaster
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  • Jul 11, 2001

    Hughes Software : Mixed performance

    Hughes software posted a mixed performance. The topline growth has been below expectations but the bottomline has exceeded estimates. The sequential (QoQ) growth in revenues is 2.3% while the net profits have dropped by 15%. On a YoY basis the topline growth has been 77%, while the bottomline growth has been 101%.

    (Rs m) 4QFY01 1QFY02 Change
    Sales 620 634 2.3%
    Other Income 25 32 28.0%
    Expenditure 360 416 15.6%
    Operating Profit (EBDIT) 260 218 -16.2%
    Operating Profit Margin (%) 41.9% 34.4%
    Interest - -
    Depreciation 43 48 11.6%
    Profit before Tax 242 202 -16.5%
    Tax 21 15 -28.6%
    Profit after Tax/(Loss) 221 187 -15.4%
    Net profit margin (%) 35.6% 29.5%
    No. of Shares (eoy) (m) 33.3 33.3
    Diluted Earnings per share* 26.5 22.5  -
    *(annualised) - - -
    P/E (X) - 27.0

    The company's operating margins have come down by more than 750 basis points (QoQ). This could be due to the fact that the company's staff costs have gone by 33% compared to 4QFY01.The increase has caused staff costs to rise from 28.5% of revenues in 4QFY01 to 37% of revenues in the current quarter. As this the first quarter of the current financial year, the staff costs could have gone up due to pay hikes given to employees. The traveling costs on the other hand have declined by 23% compared to the previous quarter.

    During the quarter, the company received 36% of revenues from services to parent, Hughes Network Systems (HNS), 37% from services to other clients and 27% from products. Compared to 4QFY01 the company's product sales have fallen by 8% in 1QFY02. However, this has been offset by a growth of 8% in services to parent HNS and by 5% to other clients. The decline in product sales could have added to the dip in operating margins. Hughes added 11 new clients during the quarter including DirecTV and General Motors.

    At a current market price of Rs 606, the stock is trading at a P/E multiple of 27 times its 1QFY02 annualised earnings. The stock enjoys one of the highest valuations from the technology sector. However, the low topline growth could take a toll on valuations.



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