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Aptech: Signs of a comeback

Nov 11, 2002

Aptech, the IT training major, has reported its September quarter results. The company has reported a topline of Rs 411 m for 2QFY03 exhibiting a marginal QoQ growth of 2%. This is the second quarterly result that Aptech has announced post demerger of its software division. The software division of the company has been merged with Hexaware Technologies. Hence, the results are not comparable on a YoY basis. Post the recast, the year ending of the company has been changed from December to March.

(Rs m) 1QFY03 2QFY03 Growth
Net Sales 404 411 1.7%
Other Income 1 2 30.8%
Expenditure 343 335 -2.2%
Operating Profit (EBDIT) 62 76 22.9%
Operating Profit Margin (%) 15.3% 18.5%  
Interest 6 6 -1.6%
Depreciation 45 46 0.4%
Profit before Tax 12 26 125.0%
Extraordinary items 0 0  
Tax -1 -3 180.0%
Profit after Tax/(Loss) 11 23 119.8%
Net profit margin (%) 2.6% 5.7%  
No. of Shares 18.1 18.1  
Diluted Earnings per share* 2.3 5.1  
P/E Ratio   5  
(* annualised)      

Global revenues of the company stood at Rs 903 m in 2QY03, a QoQ growth of 4% over Rs 865 m reported in 1QFY03. Operating margins of the company have improved by nearly 300 basis points on a QoQ basis. Agressive cost rationalisation measures have been cited as the main reason for this considerable change in operating margins. Aptech has reported a 120% jump in its net profits (QoQ), albeit on a small base.

The core business of the company, training and education, has been facing considerable pressure on account of a prolonged slowdown in the IT industry globally. Aptech has tried to mitigate this effect by focussing on the corporate training segment of the market and forging alliances. Aptech has entered into a strategic alliance with i-flex Solutions to offer training courses on Flexcube. This move was in line with the company's aim to increase its exposure to the business process outsourcing (BPO) training sement. Aptech has decided to agressively capture this segment realising its inherent potential.

The company has also identified the fast growing Government and institutional segments for growth in the training segment. After the restructuring, the company has decided to focus of two strategic business units, IT education and Arena multimedia, which contribute 85% and 15% respectively towards the topline of the company. Arena mulitmedia is the multimedia training arm of the company. Aptech has 2,449 centres spread across 52 countries, including 250 international centres.

With no immediate respite in sight for the sagging fortunes of the global IT industry, Aptech's core business of training is likely to exihibit continued weakness. However, the company's aggressive focus on the institutional and the BPO segment may enable it to maintain its topline, if not a robust growth. The company's focus on training business post restructuring and its cost cutting measures have yielded results. Further cost rationalising can be expected, which may lead to improving operating margins and consequently, an improved bottomline. The stock is currently trading at Rs 25, a P/E multiple of 5x its annualised 2QFY03 earnings.

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