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Digital: No slowdown - Views on News from Equitymaster
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  • Oct 20, 2001

    Digital: No slowdown

    Digital remains defiant to the slowdown in the US. For 2QFY02, the company has posted a sequential growth of 15% in topline and a jump of 16% in net profits. On a YoY basis, the company’s revenues have grown by 99% and the bottomline has risen by 66%. The company’s operating margins have also improved significantly.

    (Rs m) 1QFY02 2QFY02 Change
    Sales 703 807 14.8%
    Other Income 29 29 -2.1%
    Expenditure 498 559 12.2%
    Operating Profit (EBDIT) 205 248 21.1%
    Operating Profit Margin (%) 29.1% 30.8%  
    Interest 0.1 0.3  
    Depreciation 19 26 38.0%
    Profit before Tax 215 251 16.5%
    Tax 23 28 19.3%
    Profit after Tax/(Loss) 192 223 16.2%
    Net profit margin (%) 27.3% 27.6%  
    Diluted number of shares 32.7 32.7  
    Diluted Earnings per share* 23.5 27.3  
    P/E (x)   10.7  

    Revenues from Compaq contributed to 85% of revenues and the rest came from non-Compaq clients. The revenues from Compaq have shown a sequential growth of 15% and that from non-Compaq customers have increased by 12% for the same period.

    The growth in topline has come from enterprise solutions group that was created in the previous quarter (1QFY02). Infact, it is very positive that none of the business areas have shown de-growth.

    Service offerings 1QFY02 2QFY02  
      % of revenues Rs m % of revenues Rs m Change
    eApplications 44.0% 309 44.0% 355 14.8%
    Systems Engineering 20.0% 141 18.0% 145 3.3%
    Enterprise Solutions 21.0% 148 22.0% 178 20.3%
    eInfrastructure 12.0% 84 11.0% 89 5.2%
    Telecom 3.0% 21 4.0% 32 53.0%
    Advanced Technology Group (ATG) NA NA 1.0% 8  
    Total   703   807 14.8%

    Another big positive is that Digital has maintained its earnings guidance for FY02. The company has reiterated that it will post a 50% growth in topline for FY02. This is one of the strongest topline growth guidance given from the Indian software sector. However, the valuations are not reflecting this due to concerns about the company being able to meet its revenue target.

    At the current market price of Rs 292, the stock is trading on a P/E multiple of 11x its 2QFY02 annualised earnings. The stock is likely to see an upside to its valuations considering its performance in 2QFY02.



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