Aug 27, 2002|
VisualSoft: Changing gears
VisualSoft posted a strong 8% growth in revenues for 1QFY03. This was the third consecutive quarter where the company managed to post a sequential growth in revenues and also improve its operating margins. This consistency in performance could be a sign of the company finally managing to get its act together.
As a recap, in FY01, VisualSoft was different software company. It derived almost half of its revenues from products, a feat no other listed Indian software company (at that time) had managed. The company was growing swiftly due to a significant contribution from products and at one point of time it had operating margins in excess of 50%. The stock was a darling on the bourses. Then trouble struck. VisualSoft’s hit a speed breaker due to decline in sales of its products. From 4QFY01 onwards the company’s product related sales fell steeply. As a result, the contribution of the product sales to total revenues slipped from 52% in 3QFY01 to 4% in 1QFY03.
VisualSoft started rethinking its business strategy. The company decided not to focus on the products business in future and concentrate on its services revenues. The company managed to perform rather well on this front and revenues from its services business grew steadily in FY02. Services revenues grew by a strong 36% in FY02, as compared to a 22% decline in total revenues.
The company is looking at different options to add pace to its topline. This includes the tapping R&D outsourcing market and a possible entry in the business process outsourcing (BPO) segment. VisualSoft plans to address the embedded technologies segment in the R&D sphere. The market for embedded systems is at a nascent stage and global technology majors are spending significant amounts on R&D to perfect technologies like Bluetooth, ASIC (application specific integrated circuits) and SoCs (Systems on Chips). Companies like Wipro and HCL Technologies have a significant presence in this segment. Therefore, VisualSoft will have to face stiff competition from these majors. Also, considering the fact that VisualSoft has not executed any significant project in this area, getting a share of the market will be an uphill task. However, with the market for R&D services estimated to be about 15% of the total exports of the Indian software industry in FY01 (US$ 1 bn), there seems to be room for a lot of players.
Business process outsourcing on the other hand, seems to be a more viable option for the company. As companies concentrate on the core activities, IT-intensive business processes are delegated to an external service provider. The service provider owns, administers and manages the processes. Many of the processes that are outsourced are routine in nature, like payroll management. These areas do not require skilled human resource. According to Gartner, the global market for BPO will nearly triple from US$ 106 bn (Rs 5,088 bn) in 1999 to US$ 301 bn (Rs 14,448 bn) in 2004. But the flip side is that barrier to entry in this segment is low. The company announced in 1QFY03 that it plans to go live with the BPO initiative within the next 18 months and will employ about 1,000 people.
At the current market price of Rs 180, the stock is trading at a P/E multiple of 12x FY03 expected earnings. Considering the performance in the recent past and the fact the its valuations are on the lower side, the stock could be a one of the key gainers if the interest in the technology sector revives. However, retail investors should also understand that the risk element in the stock is very high considering its low revenue base, relatively lesser number of clients and of course its disastrous performance in the past. Also, three quarters is a short time to judge a company.
More Views on News
Aug 2, 2017
A better than expected turnaround in performance results in a change in view.
Jul 27, 2017
Digital services drive growth for Wipro in 1QFY18.
Jul 14, 2017
Infosys starts FY18 on an encouraging note with a stable performance.
Jul 14, 2017
TCS starts FY18 decently despite an adverse currency impact.
Jun 29, 2017
Volvo partnership caps a good year for HCL Technologies.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. 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: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407