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Geometric: Extraordinary dent to bottomline - Views on News from Equitymaster
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Geometric: Extraordinary dent to bottomline
Oct 21, 2008

Performance summary
  • Topline grows by 9% QoQ during 2QFY09. Growth for the quarter is largely led by the services business (contributes 60% of revenue).

  • Operating margins expands by 3.7% QoQ during the quarter owing to forex gains, better utilisation and higher offshore business.

  • Net profits grow by 22% QoQ during the quarter. This is after excluding the extraordinary items from both the quarters.

  • Adds 15 new clients and 378 employees during the quarter.



(Rs m) 1QFY09 2QFY09 Change 1HFY08 1HFY09 Change
Sales 1,404 1,525 8.6% 2,354 2,930 24.5%
Expenditure 1,275 1,329 4.2% 2,161 2,604 20.5%
Operating profit (EBITDA) 130 196 51.3% 193 327 69.4%
Operating profit margin (%) 9.2% 12.9% 8.2% 11.2%
Other income 14 (28) 188 (14)
Depreciation 49 49 0.0% 95 99 4.1%
Interest 10 12 21.4% 32 21
Profit before tax 85 108 26.7% 254 194
Tax 14 22 51.5% 13 36 182.2%
Minority interest 33 40 21.2% 34 73 111.1%
Extraordinary income/(expenses) and prior period adjustments 124 (14) - 110
Profit after tax/(loss) 162 32 -80.3% 207 195 -5.9%
Net profit margin (%) 11.5% 2.1% 8.8% 6.7%
No. of shares (m) 62.1
Diluted earnings per share (Rs)* 5.0
P/E ratio (x)* 6.6
* On a trailing 12-months basis

What has driven performance in 2QFY09?
  • Geometric recorded a 9% QoQ growth in net sales during 2QFY09. This was aided by strong performance from the companyís software and automotive businesses, which grew sales by 3% QoQ and 12% QoQ respectively

    Revenue break up by vertical

      1QFY09 2QFY09 Change
    % of revenue Rs m % of revenue Rs m
    Software ISV and partners 50% 695 47% 718 3%
    Automotive 31% 428 31% 477 11%
    Agri and construction equipment 10% 143 12% 178 25%
    Industrial & Marine Eng 6% 77 5% 72 -7%
    Others 4% 60 5% 79 31%

  • Geometricís operating margins expanded by 3.7% QoQ during 2QFY09. This was mainly on account of increase in contribution of offshore projects to total services revenue, as the same grew from 53.5% in 1QFY09 to 55.7% in 2QFY09. The increase in US engineering revenue by 2.2% QoQ also aided the margin. Furthermore, increase in billing rates by a non-automotive customer and favorable movement of rupee against US dollar also helped improvement in margins during the quarter.

  • Gometric added 15 new customers and 378 employees during 2QFY09. The attrition rate however increased to 18.7%, from 16.3% in 1QFY09.

  • Geometric recorded a 22% QoQ increase in net profits during 2QFY09. This is after we exclude the extraordinary adjustments from both the quarters. Including the extraordinary items, net profits have fallen by 82% QoQ during the quarter.

What to expect?
At the current price of Rs 26, the stock is trading at a multiple 5.2 times its trailing 12-months earning. The management has indicated that although the current problems affecting the US and European financial institutions do not affect Geometric directly, the fact that a large share of its operations is in the manufacturing and allied industries, growth might be indirectly impacted owing to the current crisis.

The management has also indicated that the companyís major customers in the US automotive sector have been impacted due to the US slowdown, which is likely to dilute growth rates in the automotive segments to a certain extent. However, the company has continued to focus on diversifying outside the automotive segment and across different geographies, which is going to pare the overall pressure going forward. The management has indicated that it has seen healthy traction in APAC and Indian markets. The strong order backlog for rest of the year, which is roughly around US$ 50 m also gives good revenue visibility for the short to medium term. We are trying for a research meeting with Geometricís management and shall update you with our view on the company post that.

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