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Geometric: Another lackluster quarter - Views on News from Equitymaster
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Geometric: Another lackluster quarter
Aug 1, 2008

Performance summary
  • Topline grows by 11% QoQ during 1QFY09. Growth for the quarter is largely led by the services business, which has grown sales by 12% QoQ. Product revenues decline by 6% QoQ.
  • Operating margins contract by 3.2% QoQ during the quarter owing to higher employee costs (as percentage of sales).
  • Net profits decline by 18% QoQ during 1QFY09. This is after excluding the extraordinary income of Rs 124 m on account of profit on sale of property in Pune.
  • Adds 20 new clients during the quarter, thus taking the total clientele to 133.

(Rs m) 4QFY08 1QFY09 Change
Sales 1,264 1,404 11.1%
Expenditure 1,107 1,275 15.2%
Operating profit (EBITDA) 157 130 -17.4%
Operating profit margin (%) 12.4% 9.2%
Other income (11) 14
Depreciation 52 49 -5.1%
Interest 8 10 19.0%
Profit before tax 86 85 -1.3%
Tax 33 14 -56.2%
Minority interest 7 33 368.6%
Extraordinary income/(expenses) - 124
Profit after tax/(loss) 46 162 251.8%
Net profit margin (%) 3.6% 11.5%
No. of shares (m) 62.1
Diluted earnings per share (Rs)* 4.3
P/E ratio (x)* 12.9
* On a trailing 12 months basis # Excluding Extraordinary gains

What has driven performance in 1QFY09?
  • Geometric recorded an 11% QoQ growth in net sales during 1QFY09. This growth was aided by strong performance from the company's software and engineering service businesses, which grew its sales by 12% QoQ. However, the product segment (5.7% of consolidated sales) recorded a 6% QoQ decline during the quarter. At the end of previous quarter (4QFY08), Geometric's management had indicated that continuous pressure in the Detroit automobile market affected their product business revenue, from where the company (including its subsidiary Modern Engineering) derives a large share of its products revenues. The impact was seen in 1QFY09 as well.

    Segment performance
    (Rs m) 4QFY08 1QFY09
    Products-Revenue 86 80
    PBIT margin 62.2% 15.6%
    Projects-Revenue 1,179 1,324
    PBIT margin 25.6% 32.1%

  • Geometric's operating margins contracted by 3.2% QoQ during 1QFY09. This was largely owing to higher personnel cost and SG&A expenses (both as percentage of sales). Improvement was seen in margins of the services business, which improved from 25.6% in 4QFY08 to 32.1% in 1QFY09.

  • During 1QFY09, Geometric won a product-engineering contract from an American automotive major to support its China requirements. The company has also struck a deal to support product enhancement for one of the world's leading metrology companies, including setting up of a Metrology Center of Excellence in India. Furthermore, the company has won a project for one of the world's leading fashion and luxury goods companies, indicating success in diversification of the PLM solutions portfolio and a multi million dollar PLM production support project for a global automotive major.

  • Geometric recorded an 18% QoQ decline in net profits during 1QFY09. This was after excluding the extraordinary income, which the company realised after sales of its immovable property, including land, building and other assets situated in Pune. Including the one-off gain, net profits have grown by 252% QoQ during the quarter.

What to expect?
At the current price of Rs 56, the stock is trading at a multiple 12.9 times its trailing 12-months earnings (excluding extraordinary adjustments). Geometricís engineering services (more specifically business in Detroit) is facing a number of issues. Apart from the decline in volume of business, there is also significant rate pressure from the large customers and this has impacted the profitability of this segment adversely. However, the company has witnessed an encouraging trend in its offshore services business that has grown significantly over the previous few quarters.

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