Digital: Investing for growth… - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Digital: Investing for growth…

Oct 21, 2003

Digital Globalsoft has announced good September quarter results reporting sequential topline and bottomline growth of around 8% and 6% respectively. For the half-year ended September 2003, the company’s sales and net profit were higher by 48% and 27% respectively on a YoY basis. While the operating margins dipped marginally (by 70 basis points) for 2QFY04, the drop on this front was greater for the half-year period (280 basis points).

Financial performance: A snapshot
Rs m1QFY042QFY04Change1HFY031HFY04Change
Sales 1,350 1,456 7.9% 1,910 2,819 47.5%
Other Income 53 43 -19.2% 85 83 -2.8%
Expenditure 985 1,074 9.0% 1,340 2,059 53.6%
Operating Profit (EBDIT) 365 383 4.9% 570 760 33.3%
Operating Profit Margin (%)27.0%26.3% 29.8%27.0% 
Interest 1 1   1 2  
Depreciation 78 88 13.1% 132 166 26.0%
Profit before Tax339336-0.8%52367529.2%
Extraordinary items (7) (2)  - (9) 
Tax 30 15 -49.2% 33 45 38.0%
Profit after Tax/(Loss) 302 319 5.6% 490 621 26.8%
Net profit margin (%)22.4%21.9% 25.6%22.0% 
No. of Shares 33.0 33.0   33.0 33.0  
Diluted Earnings per share* (Rs)36.638.7 29.737.6 
P/E Ratio (x)  14.5    14.9  
(* annualised)      

The growth in Digital’s revenues for the September quarter is mainly a result of a 99% increase in revenues from the contact center business (DCC) that now contributes to around 11% (6% in 2QFY04) of the company’s total revenues. Also, the software services business, which includes segments other than DCC and products, grew sequentially by 2%. Within this segment, major contributors to revenue, like the eApplications and Enterprise Solutions segments, displayed strong performance with growth of 4% each.

Share of revenues…
eApplications 540 40.0% 564 38.7%4.4%
Systems Engineering 169 12.5% 155 10.6%-8.3%
Enterprise Solutions 357 26.4% 371 25.5%3.9%
eInfrastructure 124 9.2% 136 9.3%9.7%
Telecom 45 3.3% 38 2.6%-15.6%
ATG* 27 2.0% 24 1.6%-11.1%
DCC 80 5.9% 159 10.9%98.8%
Products 8 0.6% 9 0.6%12.5%
Total 1,350 100.0% 1,456 100.0%7.9%
*ATG- Advanced Technology Group

Digital’s topline growth has also been helped by an 8% sequential growth in its HP and related business, out of which HP business grew by 8.7% while HP-related business witnessed a decline of 5%. It is to be noted that while the company aims at leveraging HP’s strong sales and marketing support to get clients, the HP-related business has been witnessing a continuous decline quarter on quarter. In case of business from HP (around 77% of Digital’s total revenues), this has been a comfort factor for Digital as revenues from this segment have consistently increased their contribution to Digital’s topline. Over that, as and when the integration of HP-ISO with Digital is completed, the combined entity is expected to garner higher revenues from the parent. As for Digital’s non-HP business, this grew by around 7% sequentially and now contributes to around 19% of the company’s revenues.

In 2QFY04, the 9% sequential rise on the expenditure front is mainly due to rise in personnel (6%) and travel costs (18%). The rise in staff costs was a result of Digital hiring around 1,200 people in 2QFY04. Notably, almost 900 of these were hired for the DCC business. This ramping up on the DCC front is indicative of higher traction that Digital is expecting from this segment. DCC now has 1,897 employees on its rolls, up significantly from around 140 at the end of September 2002. The company is likely to carry on with this level of hiring as can be seen by its capex during 2QFY04 when around Rs 218 m were invested in building up infrastructure.

On the operating margins front, while the drop seems marginal for the September quarter it has been mainly influenced by the DCC and product segments, where Digital is continuing with its investments initiatives. While the PBIT margins for DCC and product segments in 2QFY04 were negative 9.4% and 268% respectively, these have improved over the previous quarter when the margins were negative 25% and 353% respectively. Going forward, as the company increases business from these segments, the performance on the margins front is likely to improve.

At the current market price of Rs 562, the stock is trading at a P/E multiple of 14.9x its annualized 1HFY04 earnings. Digital is undergoing a structural change in terms of its integration with HP-ISO. This integration seems to be moving rapidly on the sales and marketing fronts. Also, the rapid ramping up that Digital is undertaking, especially on the DCC front, indicates the high level of growth that the management is expecting this integration with HP-ISO to provide. However, investors need to remain cautious as this integration is still to be completed and, as such, there is still not enough clarity regarding the same. However, investors could take comfort from the fact that the parent (HP) has already indicated that it would commit around US$ 215-270 m to Digital’s revenues by FY05.

Equitymaster requests your view! Post a comment on "Digital: Investing for growth…". 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.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

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.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.


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