Hughes Software: Displaying resilience - 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?  

Hughes Software: Displaying resilience

Oct 8, 2003

Hughes Software Systems (HSS) has reported strong 1HFY04 results with its topline improving by 62% and bottomline by a substantial 153%. However, growth figures for the September quarter seem marginally subdued when we compare this with HSS’ performance over the last four quarters. Notably, in 1HFY04, the company has improved upon its operating margins by 530 basis points, which is commendable.

Financial performance: A snapshot
(Rs m)1QFY042QFY04Change1HFY031HFY04Change
Sales 765 850 11.1% 995 1,615 62.3%
Other Income 18 17 -5.6% 42 35 -16.7%
Expenditure 559 621 11.1% 780 1,180 51.3%
Operating Profit (EBDIT) 206 229 11.2% 215 435 102.3%
Operating Profit Margin (%)26.9%26.9% 21.6%26.9% 
Interest - -   - -  
Depreciation 52 54 3.8% 104 106 1.9%
Profit before Tax17219211.6%153364137.9%
Extraordinary items00 00 
Tax 20 23 15.0% 26 43 65.4%
Profit after Tax/(Loss) 152 169 11.2% 127 321 152.8%
Net profit margin (%)19.9%19.9% 12.8%19.9% 
No. of Shares 33.7 33.7   33.7 33.7  
Diluted Earnings per share* (Rs)18.020.1 7.519.1 
P/E Ratio (x)  19    20  
* annualised      

Topline performance for HSS in 2QFY04 has been mainly boosted by growth in its product revenues (19% of total revenues), which grew sequentially by 51%. However, on the services side, while revenues from the parent, Hughes Network Services (HNS), declined by 4% sequentially, that from its other clients (57% of total revenues) witnessed a rise of 9%. The company has been able to reduce its revenue contribution from parent at the same time growing overall revenues. This is a good sign. However, the parent HNS still contributes to around 19% (2QFY04) of overall revenues.

The BPO business (5% of total revenues) that HSS initiated in 3QFY03 witnessed a sequential decline of 7% in revenues in 2QFY04. For this venture, the performance on the EBIT margins front was even more dismal. After improving to -5% in 1QFY04 (from –83% in 4QFY03), these have fallen to -16% in 2QFY04. However, the fact that, owing to slowdown in the global telecom sector, HSS has initiated towards broadening its service offerings very recently, new ventures like these would still take some more time to provide returns commensurate to investments in them. Overall, HSS added 14 new customers for its products and services during 2QFY04 (14 in 1QFY04). Growth in volumes has driven up the utilisation rates to 95%.

On the operating margins front, while HSS managed to keep them intact for 2QFY04, margins actually improved for 1HFY04. This is despite the fact that the company added 91 employees in 2QFY04 (78 in 1QFY04). Due to this addition, while staff costs grew marginally (9%) on a sequential basis, their contribution as a percentage of revenues dipped in this quarter, thus helping in improvement of operating margins.

FY04 guidance: The revisions…
 4QFY031QFY042QFY04
Revenue35%-40%55%-60%Maintains
PAT40%-45%60%-70%80%

At the current market price of Rs 376, the stock is trading at a P/E multiple of 18.3x its FY04 earnings guidance. It is to be noted that the management has, for the third time in last three quarters, revised its earnings guidance upwards. However, the revenue guidance has been kept intact in this quarter (see table above). Considering the performance that HSS has displayed over the past few quarters, it seems that the company is moving towards outperforming these guidance in FY04. However, much would depend on the ability of HSS to cater to requirements of new technologies through continuous investments in R&D. Over that, till there is more clarity regarding improvement in telecom spending globally and the kind of outsourcing contracts that HSS is able to garner, there is a need for investors to remain cautious towards the stock.

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

  

More Views on News

If You had Invested Rs 1 Lakh in TCS in 2011, this is how Much You Would have Today (Views On News)

Nov 30, 2021

Did TCS perform better than the market and its peers?

India's Top 4 IT Companies are Struggling. Here's Why... (Views On News)

Oct 22, 2021

As attrition rates are unbelievably high, top Indian IT companies are going for big-ticket raises, and much more hiring this year.

Infosys had an Exceptional Quarter Buoyed by Huge Deal Wins. Revenue Guidance Boosts Stock (Views On News)

Oct 14, 2021

Infosys raised its forecast for annual revenue growth to 16.5-17.5% from the earlier 14-16%, predicted in July 2021.

Info Edge: The Anatomy of an Indian Internet Behemoth (Views On News)

Oct 2, 2021

Info Edge is very popular in the Indian startup ecosystem due to its active participation in funding events.

This Indian Company is Tapping into the Huge Autonomous Driving Opportunity (Views On News)

Sep 14, 2021

Despite many challenges, Indian companies and startups have not shied away from entering this space.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

6 Penny Stocks that Rallied 1,000%+ in One Year (Views On News)

Dec 6, 2021

These penny stocks shed their penny status by surging 1,000% or more in the last one year.

The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

Nov 26, 2021

How India's EV transition could be a major headwind for the incumbents.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

TRACK FLEXTRONICS SOFTWARE

  • 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

MARKET STATS