Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Tata Infotech: In murky waters - Views on News from Equitymaster

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

  • MyStocks


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

Tata Infotech: In murky waters

Aug 22, 2003

Tata Infotech, in its June quarter, reported a dismal performance with topline falling by 14%, and profits by a substantial 47%, on a sequential basis. Importantly, the company has witnessed its margins decline by more than half over the period.

Rs m 4QFY03 1QFY04 Change
Sales 1,533 1,318 -14.0%
Other Income 19 64 235.4%
Expenditure 1,285 1,214 -5.5%
Operating Profit (EBDIT) 248 104 -58.0%
Operating Profit Margin (%) 16.2% 7.9%  
Interest 2 -  
Depreciation 33 28 -16.4%
Profit before Tax 232 141 -39.3%
Extraordinary items 0 0  
Tax 6 21 243.3%
Profit after Tax/(Loss) 226 120 -46.8%
Net profit margin (%) 14.7% 9.1%  
No. of Shares 18.4 18.4  
Diluted Earnings per share* (Rs) 49.2 26.2  
P/E Ratio (x)   10  
(* annualised)      

Decline in Tata Infotech’s topline is mainly due to disappointing performance in all its service offerings. While the systems integration (80% of total revenues) service’s revenues declined by 9%, the story was graver still for its manufacturing services where revenues declined by 34%.

Segment-wise breakup
Rs m 4QFY03 % of revenues 1QFY04 % of revenues Change
Systems Integration Services 1,162 75.2% 1,057 80.1% -9.1%
Manufacturing Services 331 21.4% 217 16.4% -34.4%
Education Services 53 3.4% 46 3.5% -13.3%

This performance seems all the more disappointing, specifically for the systems integration business, when we consider the fact that the market for this service is growing rapidly. This is due to the fact that clients are improving on efficiency fronts by integrating their diverse systems into a single system. Another concerning factor for Tata Infotech is the sluggish performance of its manufacturing services division, which provides contract manufacturing services to its clients for electro-mechanical devices. Declining revenues from the company’s education services business, which chiefly caters to training of corporates, is also a drag on the overall performance. The IT education and training business is one of the worst hit in the economic slowdown, and any improvement in the same will depend on the overall situation improving, and on the ability of the company to provide good quality of technical education.

Tata Infotech’s performance on the operational front has been equally dismal. While the company has managed to reduce its total expenditure, this reduction has been marginal relative to the decline in the topline, thus resulting into pressure on margins. In 1QFY04, operating margins for the company have fallen by 1,800 basis points, to levels very low when compared to other Indian software companies that have margins in the range of 20%-30%.

At the current market price of Rs 262, the stock is trading at a P/E multiple of 10x its annualized 1QFY04 earnings. Tata Infotech’s track record on performance has not been enthusing for quite some time now. Also, the company has very poor disclosure levels. Investors, thus, need to apply utmost caution.

Equitymaster requests your view! Post a comment on "Tata Infotech: In murky waters". Click here!


More Views on News

Newgen Software Technologies Ltd. (IPO)

Jan 15, 2018

Should you subscribe to the IPO of Newgen Software Ltd?

Ankit Shah's First Five Insider Recommendations (The 5 Minute Wrapup)

Aug 5, 2017

How to get exclusive insider recommendations from Ankit Shah.

More Views on News

Most Popular

This is Why the Stock of Jubilant FoodWorks Went Up 1,160%(The 5 Minute Wrapup)

Apr 12, 2019

This critical business strategy has enabled companies to scale their operations faster.

Pocketing Massive Gains with HDFC And HDFC Bank(Profit Hunter)

Apr 12, 2019

Here's how one could have generated gains of Rs 59,250 in 10 days by trading HDFC and HDFC Bank with a capital of Rs 4 lakh.

My Master Series on How to Trade Election 2019(Profit Hunter)

Apr 16, 2019

For 30 years he has watched how elections impact the markets, and practiced how to profit from it. Now he is here...telling you everything. Read on...

Election Series: Follow the World's Biggest Traders To See Where the Money Flows(The 5 Minute Wrapup)

Apr 17, 2019

20% of all the traders bring in 80% of the money. Watch these 20% and you get a working idea of which way the wind is blowing.

A Letter to You from India's No. 1 Trader(The 5 Minute Wrapup)

Apr 15, 2019

It's our great pleasure to introduce Vijay Bhambwani to our readers - we consider Vijay to be India's best trader. Read on to find out why...


Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms


  • 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