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Tata Infotech: Slips into red

Jul 29, 2002

Tata Infotech has posted a loss of Rs 11 m for 1QFY03. This is due a steep fall in revenues during the quarter. On a sequential (QoQ) basis the company’s revenues have declined by 16%.

(Rs m) 4QFY02 1QFY03 Change
Sales 1,146 958 -16.4%
Other Income 29 21 -26.2%
Expenditure 1,114 986 -11.5%
Operating Profit (EBDIT) 32 (28) -188.6%
Operating Profit Margin (%) 2.8% -2.9%  
Interest 2 4 81.8%
Depreciation 39 36 -7.8%
Profit before Tax 19 (46) -337.9%
Tax (50) (35) -29.4%
Profit after Tax/(Loss) 69 (11) -116.3%
Net profit margin (%) 6.0% -1.2%  
Diluted number of shares (m) 18.4 18.4  
Diluted Earnings per share* 15.1 (2.5)  
P/E (at current price)   -  

The numbers look equally disappointing when compared on a YoY basis. The topline has declined by 27%. The company in 1QFY02 had posted a net profit figure of Rs 54 m. Tata Infotech slipped into the red, as it could not cut its costs in line with the fall in revenues. The most inflexible cost head was employee costs that declined by only 7%. However, the company did manage to cut overseas business, raw material and other costs significantly.

Of the total revenues, 10% came from the manufacturing and 5% from education. The lion’s share came from the company’s systems integration business that is witnessing a slowdown. On a QoQ basis, revenues from the company’s systems integration business declined by 14%. At a time when other Indian software companies have managed to improve performance, Tata Infotech’s performance has deteriorated. Infact, in the last quarter 4QFY02, the company had posted a strong 12% sequential growth in revenues.

At the current market price of Rs 190, the stock trades at a P/E multiple of 15x its FY03 estimated earnings. Considering the disappointing performance the stock price is likely to head south going forward.

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