Tata Infotech: Good plans but… - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Tata Infotech: Good plans but…

Aug 9, 2002

Tata Infotech is one of the very few technology companies that totally missed out on the IT services boom. Over the past four years (FY98-FY02) the company has a clocked a topline growth of 11%, much lower than the figure for the IT industry in India, which is about 55%. What is more disappointing is the fact that company’s profitability has steadily eroded during the period, declining at a CAGR of 24%. There are a number of reasons for the company’s poor performance. Firstly, its business mix. The company’s service offerings include system integration services (84% of revenues in FY02), education and training (7%) and manufacturing (8%). The disappointing performance stems from the fact that revenues from the education business declined by 3% and 32% in FY00 and FY01 respectively. Another reason for the company’s woes was its client concentration. Infact in 1998 almost all of its export revenues were from Unisys. And decline in revenues from Unisys caused Tata Infotech’s financials to take a hit. The company’s operating margins at 4% in FY02 stand lower than most of the manufacturing firms in the country.

Growth FY99 FY00 FY01 FY02
Manufactured systems 26.3% -31.0% -8.0% 60.6%
Systems integration 21.9% 13.9% 30.7% -12.8%
Education & training 16.2% -2.8% -32.8% 23.2%
Total 21.7% 7.5% 22.0% -7.3%

However, the company has taken a number of steps to reduce the bottlenecks in its performance. Firstly, it has significantly reduced it concentration on Unysis by adding a number of clients. Tata Infotech sees the next big growth opportunity for its software services business from healthcare market. In FY01, 34% of the revenues were from IT services rendered in domestic markets. The clients were mostly government organisations. The Tata’s have further strengthened their presence in the segment with the acquisition of CMC, which was a PSU. Now Tata Infotech can leverage on CMC’s relationship with government institutions for improved revenues.

For growth in its hardware business, the company is focusing on emerging technologies and plans to offer services in the area of embedded systems. Tata Infotech is also looking at its education business for future growth. The company plans to enter offer IT education services globally. Thus, expanding into virtually untapped markets. Other plans for growth in the education business includes plans to offer courses in emerging opportunities like IT enabled services.

Read our research report on Tata Infotech.

Inspite of all the efforts 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%. 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.

The company’s performance was once again disappointing. However, its plans to grow have merit. Also, there is a possibility of strong growth in the future for the IT sector as a whole and the company might be able to benefit. More importantly, in the recent past there has been a change in the top management. This might auger well for the company in the future. However, before considering the stock as an investment option it needs to show a continuous and consistent improvement in performance instead of just plans for growth.

Equitymaster requests your view! Post a comment on "Tata Infotech: Good plans but… ". Click here!

  

More Views on News

TCS vs Wipro: Which Stock is Better? (Views On News)

Jan 21, 2022

With the demand for IT services growing rapidly, find out who has a better chance of coming out on top.

This Internet Economy Stock Turned Multibagger in 3 Months. Here's What You Need to Know About It... (Views On News)

Dec 10, 2021

This little-known cloud service providing company has trumped big internet companies such as Info Edge, IndiaMART InterMESH, and raced ahead.

If You had Invested Rs 1 Lakh in TCS in 2011, this is how Much You Would have Today (Views On News)

Nov 30, 2021

Did TCS perform better than the market and its peers?

India's Top 4 IT Companies are Struggling. Here's Why... (Views On News)

Oct 22, 2021

As attrition rates are unbelievably high, top Indian IT companies are going for big-ticket raises, and much more hiring this year.

Infosys had an Exceptional Quarter Buoyed by Huge Deal Wins. Revenue Guidance Boosts Stock (Views On News)

Oct 14, 2021

Infosys raised its forecast for annual revenue growth to 16.5-17.5% from the earlier 14-16%, predicted in July 2021.

More Views on News

Most Popular

10 Indian Companies with the Fastest Growth in Dividend Payouts... (Views On News)

Jan 10, 2022

These companies have been consistently paying higher dividends for several years.

Tata Steel vs SAIL: Which Stock is Better? (Views On News)

Jan 13, 2022

With government initiatives set to boost the steel sector, find out who has a better chance of coming out on top.

Watch Out for these 4 Indian Companies Betting Big on EV Supply Chain (Views On News)

Jan 11, 2022

The upside in supply chain players could be huge but a delay in the transition to EVs, or any policy related hiccups could end the momentum.

Tech Mahindra's CTC Acquisition: Too Expensive? (Views On News)

Jan 18, 2022

Tech Mahindra's acquisition of European IT-company fails to excite investors.

These 5 Penny Stocks are Held by Rakesh Jhunjhunwala. Worth a Look? (Views On News)

Jan 18, 2022

Rakesh Jhunjhunwala is holding these penny stocks in his portfolio for several years now.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

TRACK TATA INFOTECH

  • Track your investment in TATA INFOTECH with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

MARKET STATS