Geometric has posted a strong 6% sequential growth in topline and a significant 44% growth in net profits for 2QFY02. However, the jump in net profits is largely due to a significant other income component. On a YoY basis the company’s topline has grown by 68%. In 2QFY01, the company had reported a loss. The highlight of the performance is that not only has the company managed to post a topline growth, it has managed to improve operating margins by about 240 basis points. The performance is remarkable considering the downturn that software services have been facing. Most of the second rung software companies are reeling under the adverse impact of the down turn.
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The company has managed to control its costs. Consequently, the operating margins have improved. Though, both traveling and employee costs have grown, the company has managed to cut its miscellaneous costs by 27% sequentially.
On a consolidated basis, Geometric clocked Rs 182 m in revenues for the quarter. It earned 87% of its revenues from services and the remaining 13% came from software products. One of the reasons for Geometric managing to post a positive performance could be its low reliance on product related sales. In this downturn, software companies that have a significant contribution from products have been the hardest hit. The list includes VisualSoft and Hughes Software.
At the current market price of Rs 75, the stock is trading at a P/E multiple of 3 times its 2QFY02 annualised earnings. The valuations will see some upside due to the performance. However, the concern with the sector as a whole will limit rise.
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