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Hughes Software: Hard landing - Views on News from Equitymaster
 
 
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  • Oct 11, 2001

    Hughes Software: Hard landing

    Hughes Software has posted a sequential decline of 15.6% in revenues and a steep drop of 66.3% (QoQ) in net profits for 2QFY02. On a YoY basis, the revenues have grown by 20.7%, while the bottomline has declined by 52.1%.

    (Rs m) 1QFY02 2QFY02 Change 1QFY01
    Sales 634 536 -15.5% 444
    Other Income 32 38 18.8% 33
    Expenditure 416 443 6.5% 296
    Operating Profit (EBDIT) 218 93 -57.3% 148
    Operating Profit Margin (%) 34.4% 17.4% - 33.4%
    Interest - - -  
    Depreciation 48 53 10.4% 34.6
    Profit before Tax 202 78 -61.4% 146
    Tax 15 15 0.0% 12.4
    Profit after Tax/(Loss) 187 63 -66.3% 131
    Net profit margin (%) 29.5% 11.8% -  
    No. of Shares (eoy) (m) 33.3 33.3 -  
    Diluted Earnings per share* 22.5 7.6 -  
    *(annualised) - - -  
    P/E (X) - 23.4 -  

    The company's operating margins have been affected adversely due to the dip in topline. This is mainly due to the fact that the company's product sales have shown a significant 59% dip sequentially. The contribution to revenues from products has consequently declined to 13% as compared to 27% in 1QFY02. Even revenues from services to others have shown a decline of 6% sequentially. Only revenues from HNS have shown growth. It should be noted that in 1QFY02 only product sales had exhibited a decline.

    Product woes!
    % Contribution to revenues 1QFY02 2QFY02 Change
    HNS Services 36.0% 46.0% 8.0%
    Other services 37.0% 41.0% -6.3%
    Products 27.0% 13.0% -59.3%

    While the topline is more or less in line with market expectations, it is the bottomline that has been very disappointing. At the current market price of Rs 177, the stock is trading at a P/E multiple of 23 times its 2QFY02 annualised earnings. The counter is likely to see a significant downside to the valuation due to the dismal performance.

     

     

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