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SSI: Troubled times - Views on News from Equitymaster
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  • Oct 29, 2001

    SSI: Troubled times

    SSI has posted a steep drop of 90% in net profits for 1QFY02, on a YoY basis. The decline in revenues is 18%. The sharp fall in net profits is not only due to operating margins heading south, but also due to decline in other income and increase in depreciation. On a sequential basis the company has shown a 8% drop in topline and net profits have dropped by 49%. The decline in net profits has been calculated excluding the Rs 200 m write off SSI made in 4QFY01.

    (Rs m) 1QFY01 1QFY02 Change
    Sales 1,015 829 -18.4%
    Other Income 121 73 -39.6%
    Expenditure 753 692 -8.2%
    Operating Profit (EBDIT) 262 137 -47.7%
    Operating Profit Margin (%) 25.8% 16.5%
    Interest 17 16
    Depreciation 51 159 215.2%
    Profit before Tax 316 34 -89.1%
    Tax 40 7 -83.6%
    Profit after Tax/(Loss) 276 28 -89.9%
    Net profit margin (%) 27.2% 3.4%
    Diluted number of shares 13.5 13.5
    Diluted Earnings per share* 81.7 8.2
    P/E (at current price) 16.6

    The software education companies are in trouble due falling volumes. With the job markets depressed in the US, there are not many takers for software courses. Consequently, these companies have seen margins decline steeply.

    On a consolidated basis, the company clocked Rs 1,137 m in revenues. Thus, SSI Ltd contributed 73% to SSIís consolidated revenues. Income from software services was 57% of the consolidated revenues, while education contributed 42%. For 4QFY01 the company had given a break up of the revenue for SSI Ltd., however, for 1QFY02 the company has given break up of consolidated revenues for SSI. Consequently, it is not possible to determine the growth rates in either of the revenue streams, viz software and education. Even in its press release the management has not provided any growth figures.

    The company earned 87% of its consolidated software revenues from the US, while Europe contributed a small 8%. 71% of the revenues were from onsite projects. The number of new clients added during the quarter was 13 compared to 10 in 4QFY01. Since no comparative figures are available, it is difficult to comment on this information. However, high the exposure to the US markets is a cause for concern due to bleak economic environment in the US.

    For the software education business the company saw enrollments falling from 54,567 students to 51,525 students. This translates to a drop of 6%. However, the company added 52 new centres during the quarter taking the total number of operational centres to 726. The quarter ending September is one of the best for the software companies as this quarter coincides with the beginning of the academic year. Despite this SSI has posted dismal performance indicating tough times ahead for the company.

    At the current market price of Rs 137, the stock is trading at a P/E multiple of 16 times its 1QFY02 annualised earnings. The companyís valuations might see further downside considering that they are very high compared to other software education majors.



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