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GTL: Topline blues

Aug 4, 2003

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.

Rs m 4QFY03 1QFY04 Change
Sales 1,890 1,636 -13.4%
Other Income (19) (32) 73.1%
Expenditure 1,326 1,136 -14.3%
Operating Profit (EBDIT) 565 500 -11.4%
Operating Profit Margin (%) 29.9% 30.6%  
Interest 51 (37)  
Depreciation 231 265 14.8%
Profit before Tax 265 240 -9.3%
Extraordinary items -8 0  
Tax 55 11 -80.3%
Profit after Tax/(Loss) 201 229 13.9%
Net profit margin (%) 10.6% 14.0%  
No. of Shares 70.8 70.8  
Diluted Earnings per share* (Rs) 11.4 12.9  
P/E Ratio (x)   6  
(* annualised)      

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.

Disappointing performance…
Segment revenue 4QFY03 Share 1QFY04 Share Change
Network Engineering 676 35.8% 580 35.4% -14.3%
Enterprise Solutions 905 47.9% 723 44.2% -20.0%
CMS 309 16.4% 333 20.4% 7.6%
Total 1,890 100.0% 1,636 100.0% -13.5%

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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