Tata Infotech: Uninspiring results - Views on News from Equitymaster

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Tata Infotech: Uninspiring results

Oct 29, 2001

Tata Infotech has posted a 4% drop in revenues and a 10% growth in bottomline, on a sequential basis. The increase in bottomline is due to a tax reversal of Rs 6 m, in contrast to an outgo of Rs 15 m in 1QFY01. However, the company has managed to contain costs and has limited the impact of the slowdown. On a YoY basis the revenues have declined by 6% and net profits have fallen by 8%.

(Rs m) 1QFY02 2QFY02 Change
Sales 1,317 1,262 -4.2%
Other Income 17 20 17.8%
Expenditure 1,219 1,184 -2.9%
Operating Profit (EBDIT) 98 77 -21.3%
Operating Profit Margin (%) 7.5% 6.1%  
Interest 4 4 -12.5%
Depreciation 42 40 -3.3%
Profit before Tax 69 53 -23.1%
Tax 15 (6) -141.7%
Profit after Tax/(Loss) 54 60 10.0%
Net profit margin (%) 4.1% 4.7%  
Diluted number of shares (m) 18.4 18.4  
Diluted Earnings per share* 11.8 13.0  
P/E (at current price)   7.9  

According to the company, revenue and profitability were impacted by a slowdown in its businesses. Tata Infotech’s overseas business expenses have shown a steep drop of 20% sequentially. This could be an indication that the company’s most profitable revenue stream, international software might be witnessing a decline in business. The performance raises cause for concern because other software companies in general have managed to post positive numbers.

At the current market price of Rs 103, the stock is trading at a P/E multiple of 8 times its 2QFY02 annualised earnings. The performance will not have much of an impact on the valuations since it is as per market expectations. However, the management has now indicated that this trend might continue in the future. This might cause some downward pressure on the stock price.

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