Silverline’s new man in charge Mr. Ravi Singh, Co-CEO, plans to change the way things have been with the company and therefore, recast the company’s image. According to Mr. Singh as the company had a US based management; there was a lack of communication with the investor community. Therefore, a divergence in perception (negative perceptions) regarding the company and this led to the company’s valuations being low (compared to what the management feels should have been). But now the management wants to change the perception and has promised increased disclosure in the future. The company has started an image building exercise and is trying to do away with it negative perceptions that people have hold in the past.
As a part of the effort, Silverline disclosed separately figures for its projects and employee augmentation businesses. This is commendable for two reasons: firstly, not many companies admit to the fact that they are into the employee augmentation (body shopping) business and secondly, the company also gave operational details from this area.
Revenues (Rs m)
% of total revenues
40% to 45%
20% to 25%
Billing rate/ per hour
US$ 80 - 120
US$ 22 - 35
To ally fears about the company’s growth, the management outlined strategy for the immediate future. Silverline plans to cash in on opportunities coming from maintenance and systems integration. In wake of the economic slowdown, companies are directing their IT spend towards keeping existing systems up & running and also increasing operational efficiencies. This means that maintenance and system integration are now getting a larger chunk of the IT spend. New application development has taken a backseat for the time being. As of June 30th 2001, 86% of Silverline’s revenues were from development, integration and maintenance. The company is expecting a growth of about 50% from maintenance in the near future. However, for FY02 the company forecasted about 30% growth in the topline.
Silverline also plans to de-emphasize its staff augmentation business that currently contributes 36% to its revenues. The company aims to bring down the proportion of this business to as low as 20% of the revenues in the next 12 to 18 months. As the business is at the lower end of the software value chain the operating margins are quite low compared to other offerings.
To manage cost, the company has laid off people. This was due to redundancy created after the merger of Sera Nova and Silverline. The people laid off were mostly from the HR and administrative functions. The company has also realigned salaries (pay cuts and hikes) of employees according to the billing rates the company quotes for their skill sets.
At the current market price of Rs 43, the stock is trading at a P/E multiple of 5 times its 1QFY02 annualised earnings. This is significantly lower compared to other software companies in the software sector. It is probably due to this subsidy in valuations that the management has decided to be more transparent. The positives of the company are that it has the advantage of size (is seventh largest software exporter in FY01) and the company has an impressive client list.
The management is trying to do away with the negative perception or what it would like to term as divergence in perception. Therefore, it would be worth to wait for the management to deliver what it is promising.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407