Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 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.
Hughes Software: Reality bites - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Sep 17, 2001

    Hughes Software: Reality bites

    Hughes was the only software company that seemed confident of not succumbing to the slowdown. The company’s initial guidance for FY02E was a 60% growth in topline. However, the global economic reality seems to have taken a toll on the managements optimism. The company recently revised its revenues guidance for FY02 downwards. The company now expects a topline growth of 25% to 35% for FY02.

    While the growth in revenues from services to its parents Hughes Network Systems (HNS) has been growing at a steady pace, it has been the revenues from other clients and products have shown a swift growth. It is these growth rates that seem to have been affected. Earlier the management was expecting a 20% growth in revenues from HNS, a 75% growth in services to others and a 100% growth in product related sales. However, it seems now that the growth in the revenues from services to others will be more or less in line with that from HNS.

    The biggest concern is the product sales. For 1QFY02, the product sales declined by 8% compared to 4QFY01. This might be a trend as in 1QFY01 the product sales had show a 12% drop compared to 4QFY00. But the concerns are that the product sales might continue to show a decline.

    High margins: The product effect?
    Particulars FY00 1QFY01 2QFY01 3QFY01 4QFY01 FY01 1QFY01
    Revenues from HNS 54.0% 40.0% 37.0% 34.0% 34.0% 36.0% 36.0%
    Revenues from others 26.0% 34.0% 34.0% 37.0% 36.0% 36.0% 37.0%
    Products 20.0% 26.0% 29.0% 29.0% 30.0% 28.0% 27.0%
    OPM 38.4% 31.2% 33.4% 35.7% 41.9% 36.3% 34.4%

    Even if the company manages to earn as much as it did in the first quarter of FY02 (Rs 634 m) for the remaining three quarters, the growth in revenues over FY01 will be in the range of 28%. Therefore, the quarterly results that Hughes will post are likely to be flat. But considering the company has cut its estimates so drastically there is a possibility it might show sequential decline revenue for 2QFY02.

    According to Mr. Arun Kumar, President & Managing Director, in the last 30-60 days, the global economic environment has weakened and communication companies worldwide continue to face tough times. This has lengthened the sales cycle for Hughes and many projects were being moved indefinitely to the future. The company is unclear about the turnaround in the sentiment, however, when it happens it has set for itself a target of 60% growth in topline.

    The company has stated that the PAT growth would be in the range of 23% to 27% (mid twenties). There could be a pressure on the company’s margins due to a decline in contribution of products to the revenues. The company like others has started exercising stringent cost control and is reducing non-essential expenditure to maintain margins. Earlier the company had laid-off 80 employees, nearly 5 per cent of its total workforce. This, according to the company, had been done to beef up the right mix of senior and junior people and was not due to the tough times it was facing.

    The best and the worst
    (Rs m) FY01 FY02E FY02E
    Growth 85% 25% 35%
    Revenues 1,985 2,481 2,680
    PAT growth 67% 23% 27%
    Profit after tax 629 774 799
    No of shares 16.7 16.7 16.7
    FDEPS 37.7 46.3 47.8
    P/E (x) 9.9 8.1 7.8

    At the current market price of Rs 373 the stock is trading at a P/E multiple 8-9 times its FY02 estimated earnings. For a company that is exclusively focused on technology and spends one of the highest on R&D (11% to 12% of income) to build new technology the valuations are certainly attractive.



    Equitymaster requests your view! Post a comment on "Hughes Software: Reality bites". Click here!


    More Views on News

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    HCL Tech: Ends FY17 on Expected Lines (Quarterly Results Update - Detailed)

    Jun 29, 2017

    Volvo partnership caps a good year for HCL Technologies.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    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: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


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