Global Tele-systems Limited (GTL) had recently reported results for the quarter and half ending September 2004. While the company has reported decent topline growth for both the periods, bottomline for 2QFY05 has dipped on account of a sharp reduction in other income. Margins have also come under pressure.
Financial performance (consolidated): A snapshot
Operating profit (EBDIT)
Operating profit margin (%)
Profit before tax
Profit after tax/(loss)
Net profit margin (%)
No. of shares
Diluted earnings per share* (Rs)
P/E ratio (x)
About the company
GTL has been one of the poor performers in the Indian software industry in the past few years, and this has put it in a tough position vis-à-vis its competitors. However, the company has moved on from being a hardware player to one executing turnkey projects for voice and data networks. The company’s offerings include network engineering (48% of revenues) and IT services (52%). The latter includes services such as enterprise solutions and customer management services.
What has driven performance in 2QFY05?
IT services aid topline growth: Growth in GTL’s 2QFY05 topline is a result of growth in the IT services division (52% of revenues). Notably, this segment has grown sequentially by 4.2% in 2QFY05, from a sequential decline of 0.6% in 1QFY05. However, the network engineering business (48% of revenues) has come under pressure in this quarter and revenues from the same have grown sequentially by 8.5% (16.1% QoQ in 1QFY05). This segment has been a consistent performer for GTL over the past few quarters and a slowed growth in the same is a cause of concern.
Employee costs affect margins: Higher personnel costs have impacted GTL’s operating margins in 2QFY05. These costs, which were 19% of revenues in 1QFY05, have increased to 21% in this quarter. Cost of sales has, however, declined as a percentage of sales in 2QFY05, thus paring the decline in operating margins for the company.
Exchange losses impact profits: A sharp decline in other income has led to the decline in 2QFY05 profits for GTL. This has been due to Rs 28 m of exchange losses in the quarter, from Rs 228 m of exchange gains in 1QFY05. Depreciation of the rupee vis-à-vis the US dollar has been the result of these exchange losses and has been the case with almost all Indian software companies in 2QFY05.
Performance in recent times
Sales growth (QoQ, %)
Profits (QoQ, %)
Revenue growth - Segments
Network Engineering (QoQ, %)
IT Services (QoQ, %)
What to expect?
At the current price of Rs 106, GTL’s stock is trading at a price to earnings multiple of 5.8 times annualised 1HFY05 earnings. The stock has traditionally traded at much lower multiples as compared to its peers and there are reasons for the same, the foremost being the consistent poor performance of the company in the past couple of years. We have reiterated a number of times that management in one of the most important criteria for success of a technology business and as such, the management’s inability to clearly visualize growth prospects is a big concern for GTL. Investors should thus practice utmost caution. There are better stocks to be picked from the sector.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407