Will SeraNova fuel Silverline's revenues? - Views on News from Equitymaster

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Will SeraNova fuel Silverline's revenues?

Nov 7, 2000

Silverline has recently acquired the US based e-business solutions company SeraNova for US $ 99 m in an all stock deal. The company expects the acquisition to build strong synergies between the e-business capabilities of SeraNova and the low cost delivery model of Silverline. The combined entity will also have the largest sales and delivery infrastructure in the US.

Financial Performance of SeraNova
($ m) 3QFY00 3QFY01 Change
Sales 10.5 23.3 122.2%
Other Income - -  
Expenditure 9.8 23.1 135.8%
Operating Profit (EBDIT) 0.7 0.2 -72.7%
Operating Profit Margin (%) 6.5% 0.8%  
Interest 0.0 0.5 10580.0%
Depreciation 0.4 0.7 108.9%
Profit before Tax 0.3 -1.1 -430.0%
Tax 0.2 (0.8) -509.3%
Profit after Tax/(Loss) 0.1 (0.2) -296.7%
Net profit margin (%) 1.2% -1.0%  
No. of Shares (eoy) (m) 16.6 17.5  
Diluted Earnings per share* 0.03 -  

SeraNova Inc., a global provider of eBusiness consulting services reported strong revenue growth for the quarter ended September 2000. However, the company's profits was hit by higher sales & marketing expenses and general expenses. The outstanding loans of SeraNova (from its parent Intelligroup) increased to $ 29 m during the nine months ended September 2000 (from $ 14 m as on December 1999).

Even after excluding the sales and marketing expenses, the company's operating margins declined to 14.4% (from 17.1% in 3QFY00).

The company has added 22 new clients during the quarter which include Alstom, British Telecom Syncordia, Cable & Wireless, Morgan Stanley Dean Witter and Sunquest.

SeraNova had earned revenues of $59 m for the nine months ended September 2000 and is projecting to earn $72 m for the current year. The company's future profit driver would be increased utilization of its offshore delivery centers and its emphasis on further building vertical industry expertise. The merger with Silverline will allow SeraNova to provide complete end-to-end solution, thus serving clients across the IT services spectrum.

At the current market price of Rs 314 Silverline is trading at a P/E of 11 times its 3QFY01 annualised earnings. Silverline's future valuations depend on its ability to generate returns on the amount invested by it (considering the accumulated losses and outstanding loans of SeraNova).

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