VisualSoft: Changing gears - 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?  

VisualSoft: Changing gears

Aug 27, 2002

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.

Stabilizing?

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.


Equitymaster requests your view! Post a comment on "VisualSoft: Changing gears ". Click here!

  

More Views on News

Sorry! There are no related views on news for this company/sector.

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

TRACK VISUALSOFT(I)

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

MARKET STATS