Trigyn : More than meets the eye - Views on News from Equitymaster

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Trigyn : More than meets the eye

Nov 15, 2000

Trigyn Technologies (formerly Leading Edge) had projected a 100% growth in turnover to US$ 40 m for FY01. Till the first half of FY01 the company has achieved a turnover of US$18 m. The company seems well on track to achieve its target. Trigyn has added 22 new clients in the last quarter, out of which 10 are for the product eVector. As a result, the contribution of products to the revenue has increased and body shopping (euphemistically know as employee augmentation) is down to around 22%. The business mix too has changed slightly in favour of Telecom. In short, Trigyn is moving up the value chain.

The company’s employee utilisation rate is around 85%. 60% of its employees are in to projects, 25% in product development, 7% are engaged in the training and the remaining 8% on the bench (waiting for assignments). This is comparable to its peers in the industry

The company’s revenues from Europe and Asia Pacific markets are improving, the positive results of which, will reflect in the coming quarter. Also, the company claims that its e-business clients are shifting from dot coms to corporate.

However, the above painted picture is very rosy. Let us look at the fine prints. For the second quarter there is a huge component of other income Rs 40 m in net profit (PAT). If you remove this component the company’s PAT has fallen (down 40%) compared to the previous quarter. The company explains that this other income is due to profits from forex fluctuations and the rest are earnings from interest. Last quarter this figure was just Rs 5 m.

Also, the operating profit margins for the company is 21%. This is way below the industry benchmark of above 30%. The company claims that this is because of the losses on account of E Capital solution (a company Trigyn has acquired). Trigyn is writing off around US$ 500,000 on account of non-payment from a client (which it refused to name). This is unheard of in the industry (except for Mastek).

Trigyn has made a tax provision at the rate of 33% this quarter. Considering all its businesses are from exports this tax provisioning seems strange. Trigyn’s sales recovery period is 105 days, which is higher than the industry average of 90 days.

(Rs m) 1QFY01 2QFY01 Change
Sales 201 238 18.5%
Other Income 5 40 775.2%
Expenditure 159 187 17.4%
Operating Profit (EBDIT) 42 52 22.8%
Operating Profit Margin (%) 20.9% 21.7%  
Interest 1 2 40.4%
Depreciation 6 7 15.9%
Profit before Tax 40 84 110.2%
Tax 5 27 480.9%
Profit after Tax/(Loss) 35 57 60.7%
Net profit margin (%) 17.5% 23.7%  
No. of Shares (eoy) (m) 14.8 14.8  
Diluted Earnings per share* 9.5 15.2  
P/E (at current price) 46 28  
*(annualised)      

To sum it up, increase in top line is easy as there is a severe dearth of solutions. But what matters the most and what will be critical to survival in the digital economy is the management.

But what baffles industry watchers is the company’s declining contribution from financial services products, especially at a time when this is the fastest growing segment in the software industry. This is surprising as Trigyn has a good amount of experience in the financial services industry. With hardly any solutions provider in the securities segment Trigyn can benefit from the first mover advantage. But currently this doesn’t seem to be happening.

Bottomline, caution is the buzzword, till the company comes out clean on all issues. Sustainability is not in grabbing opportunities but in delivering, profitably.

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