GTL Limited has reported a sequential decline of 13% in its topline for 1QFY04. However, a substantial drop in tax liabilities has helped it to post a respectable 14% growth in profits. Notably, expenditure has shown a sequential decline of 14% and this has enabled the company to improve its operating margins for the quarter by 70 basis points.
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The sequential drop in topline has come about due to declining revenues from its network engineering (35% of revenues) and enterprise solutions (44% of revenues) segments. However, the customer management solutions (CMS) segment has shown a marginal growth of around 8% and stands out as the lone performer for GTL in 1QFY04. The share in revenues from this segment (which provides call centre services) is on a consistent rise over the last few quarters.
The substantial drop on the expenditure front is mainly a result of the drop in cost of sales that has reduced from 46% of revenues in 4QFY03 to 40% in 1QFY04. However, personnel and selling expenses have shown marginal increase. For FY04, the management has given a guidance of 7%-10% growth in revenues. However, given the present performance of the company, even this seems a big task.
At the current market price of Rs 81, the stock is trading at a P/E multiple 6x its annualized 1QFY04 earnings. Despite such low valuations, risk in the stock is on a very high side. In the past, the management has often changed it focus and this is likely to be a serious concern going forward. Also, the company’s performance has witnessed volatility in the past, which further adds to the risk.
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