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VisualSoft: Cost control - Views on News from Equitymaster
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  • Jul 29, 2002

    VisualSoft: Cost control

    VisualSoft continues with its turn around. The performance for 1QFY03 is certainly passable. The company has posted an 8% sequential (QoQ) growth in revenues and the rise net profits in 15%.

    (Rs m) 4QFY02 1QFY03 Change
    Sales 257 279 8.4%
    Other Income 18 12 -36.6%
    Expenditure 183 187 1.7%
    Operating Profit (EBDIT) 74 92 24.9%
    Operating Profit Margin (%) 28.7% 33.0%  
    Interest - -  
    Depreciation 23 23 0.5%
    Profit before Tax 69 80 16.8%
    Tax 4 7 51.9%
    Profit after Tax/(Loss) 64 74 14.5%
    Net profit margin (%) 25.0% 26.4%  
    Diluted number of shares (m) 19.7 19.7  
    Diluted Earnings per share* 13.1 15.0  
    P/E (at current price)   12.9  

    For the 1QFY03, both product and services revenues grew sequentially. Revenues from services were up by 7%, while the products sales jumped by 71% during the quarter. The growth in product revenues is on a low base of Rs 7 m in 4QFY02. However, the highlight of the performance is the steep rise in operating margins. This has been managed, due to the company keeping a strict control on costs. Infact the company’s costs have declined when compared on a YoY basis and the operating margins have steadily moved up over the past three quarters to almost the same levels as in 1QFY02 (33.9%).

    On a YoY, basis revenues are down 2% and the decline in net profits is steeper at 16%. While the YoY comparison looks unimpressive, it has to viewed with FY02 results in perspective. In FY02, VisualSoft has posted a 23% drop in sales and the decline in net profits was 59%. This was due the company’s products sales, which had a significant contribution to the total sales, faring very badly. Infact the contribution to revenues from product sales declined significantly, which in turn led to led to a steep fall in margins as products are a high margins business. The company then took a conscious decision to concentrate on its services business and since 3QFY02 things started to look up.

    On a YoY, basis the revenues from services are up by 16%, while the products sales are lower by 78%. The YoY growth figures highlight the fact that that the company has successfully managed a steady growth in revenues from its services business. Even the operating margins from the services business have improved from 30% in 1QFY02 to 34% in 1QFY03. The other positive is that the products business turned profitable, once again, during the quarter.

    In 1QFY03, VisualSoft added 5 new clients. Of the total services revenues 28% came from onsite services and the remaining 72% came from offshore projects. The company has one of the highest contributions from offshore projects in the software industry. The geographic concentration was almost the same as compared to a year ago. US continued to be the largest market with 64% of the revenues. Europe’s contribution was 29%, while the other geographies contributed the remaining 7%.

    At the current market price of Rs 193, the stock is trading at a P/E multiple of 13x its 2QFY02 estimated earnings. The stock price is likely to move up going forward, if the company manages to maintain the performance it has shown over the past three quarters.



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