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Geometric Software: Improved performance - Views on News from Equitymaster
 
 
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  • Oct 23, 2003

    Geometric Software: Improved performance

    Geometric Software, on a standalone basis, has reported a strong sequential performance for 2QFY04 with its topline and bottomline growing by 13% and 59% respectively. Also, operating margins for the quarter have improved significantly by around 850 basis points. However, the half-yearly results reflect the poor performance of the June quarter. Net profits for 1HFY04 have been propped up due to the effect of higher other income.

    Financial performance - The standalone picture…
    Rs m 1QFY04 2QFY04 Change 1HFY03 1HFY04 Change
    Net Sales 137 155 13.4% 284 292 3.0%
    Other Income 21 24 13.1% 19 45 134.6%
    Expenditure 115 118 2.0% 216 233 8.1%
    Operating Profit (EBDIT) 22 38 74.6% 68 59 -13.3%
    Operating Profit Margin (%) 15.8% 24.2%   24.1% 20.3%  
    Interest - 0 - - 0 -
    Depreciation 11 10 -6.4% 23 22 -5.6%
    Profit before Tax 31 51 62.3% 64 82 27.6%
    Extraordinary items - -   (1) -  
    Tax 3 5 62.6% 5 8 -
    Profit after Tax/(Loss) 28 45 58.8% 58 74 27.6%
    Net profit margin (%) 20.7% 29.0%   20.5% 25.4%  
    No. of Shares 5.3 5.3   5.3 5.3  
    Diluted Earnings per share* 21.4 34.0   22.0 28.0  
    P/E Ratio   12.5     15.1  
    (* annualised)            

    The company’s performance, on the consolidated basis (which involves performance of its subsidiaries viz., 3D PLM Software Solutions Ltd., GSS Pte. Ltd., Singapore and GSS Inc., USA), has also been promising with revenues and profits growing sequentially by around 10% and 22% respectively. Despite product revenues falling by around 10% sequentially, the company managed to improve its topline due to increase in onsite (33%) and offshore (10%) revenues.

    …and the consolidated
    Rs m 1QFY04 2QFY04 Change 1HFY03 1HFY04 Change
    Net Sales 227 251 10.3% 398 478 20.1%
    Operating Profit (EBDIT) 59 69 17.5% 102 128 25.4%
    Operating Profit Margin (%) 25.8% 27.5%   25.6% 26.7%  
    Profit before Tax 54 67 23.0% 89 121 35.5%
    Profit after Tax/(Loss) 49 60 22.0% 82 110 33.9%
    Net profit margin (%) 21.7% 24.0%   20.6% 22.9%  
    Diluted Earnings per share (Rs)* 32.9 40.2   27.3 36.5  
    P/E Ratio (x)   10.6     11.6  
    (* annualised)            

    For the consolidated entity, the Geometry Business Unit (BU) remains the largest segment and contributes 48% (59% in FY03) to the total revenues, which is followed by the Information Management BU (IMBU) at 42% (34%) and Collaborative Engineering BU (CEBU) at 10% (7%). The increased revenue contribution from IMBU is mainly a result of the strides that Geometric has made in the product lifecycle management (PLM) space where it saw good business coming from original equipment manufacturers (OEMs). Notably, during 2QFY04, one of the company’s OEM customers has committed revenues for the next year. Geometric added 5 new clients in this quarter, including 3 industrial customers. Industrial customers now contribute to around 20% of Geometric’s consolidated revenues.

    For 2QFY04, the operating profit of the standalone entity has improved due to reduced selling, marketing and travel expenses. It is to be noted that Geometric’s policy of working through partnerships, apart from benefiting it on the technology collaboration front, also aids the company in cross-selling its offerings through its partners’ sales and marketing channels. The improvement in topline well as operating profits has been the main growth driver for the bottomline of the standalone entity in the September quarter. On a half yearly basis, however, the bottomline has improved mainly due to the effect of a higher other income. The growth in other income seems to have been mainly on account of foreign exchange gains.

    The performance of Geometric continues to be volatile (see the graph above) on a quarterly basis, mainly because of the delays in project completion due to the company’ small size. However, as the company grows bigger, this volatility is likely to reduce. At the current market price of Rs 424, the stock is trading at a P/E multiple of 11.6x its 1HFY04 annualised consolidated earnings. Geometric’s management had earlier warned about the volatility in the earnings growth, mainly due to its continued investment in developing the Engineering Services (ES) practice. The management believes that positive result from this ES initiative would be realised only from FY05 onwards. Also, Geometric seems to moving in the right direction in derisking its focus from the OEM’s to industrial customers. While volatility in the company’s financial performance continues, in the long-term, as the performance stabilses, so would the valuations.

     

     

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