Wednesday, October 16, 2002
The stock gained as much 3.7% in early trades to a high of
Rs 158.45 on the BSE as a part of the general uptrend in tech
stocks, driven by a rally on the US markets on Tuesday.
However, after an early rally, the scrip declined from its
higher levels. At the time of writing this article, the scrip
was up slightly by 0.6% to Rs 153.75 on the BSE. By 14:21
IST, 8.21 lakh shares changed hands on the counter. The scrip
witnessed volatility on Monday (14 October 2002) when it declined
sharply from the higher levels, after the company unveiled
its results last Friday (11 October 2002). On Monday, the
scrip gained as much as 6.2% to a high of Rs 162.25 but it
slipped later to settle flat at Rs
152.75. Higher volumes of 19.10 lakh shares were recorded
on the counter.
Dealers attribute the volatility of the Hughes Software scrip
at higher levels in the last couple ofsessions after the announcement
of its Q2 results, to profit-taking, with the scrip having
already risen sharply inthe run-up to the results. Last Friday
- the day when the company announced its Q2 results - the
scrip rallied in mid-morning trades ahead of the results,
that were announced in the afternoon. The scrip gained 5.2%
on that day to Rs 152.75, with a major part of the gains on
the counter being recorded before the announcement of the
results. In three trading sessions, ahead of the results last
Friday, the scrip surged 13.1% from a 52-week (closing) low
of Rs 128.30 on 7 October 2002 to Rs 145.15 on
Thursday (10 October 2002). Last Friday, the scrip recorded
high volumes of 29.18 lakh shares on the BSE, recording its
highest volumes in more than a month. Dealers said operators
had bought the stock in the run-up to the results and they
offloaded it after the results.
For the second quarter ended September 2002, Hughes Software
posted a 3% fall in sales to Rs 52.1 crore and 32% growth
in net profit to Rs 8.3 crore. It was the policy change related
to capitalisation of product development costs which boosted
the profit before tax (PBT). (PBT was up
31% to Rs 10.20 crore).
The company incurred Rs 9.1 crore on product research and
development (R&D). Out of this, it capitalised Rs 4.2
crore during the quarter (Rs 0.7 crore was amortised). Thus,
the net capitalisation cost was Rs 3.5 crore during the quarter.
The company had changed the policy in this regard from
the beginning of this year. Hughes Software incurs cost to
develop standardised software modules for sale. Capitalisation
of software development costs begins upon establishment of
technological feasibility
and ends at the time the software is available for release
to customers. Software development costs are amortised on
a product-by-product basis.
The Q2 results were in line with expectations. The company
was expected to post a net profit in the range of Rs 5.23
crore and Rs 9.30 crore and sales in the range of Rs 48.5
crore and Rs 52 crore, as per a poll of analysts by capitalmarket.com.
Although the sequential performance looked encouraging with
a 10% growth in sales and 89% growth in PAT, it should be
noted that Hughes Software's first quarter performance was
very disappointing. Hence, the performance for this quarter
is more or less a pull back from the last quarter.
The services to Hughes Software's parent, Hughes Network
Systems (HNS), contributed 29% (Rs 15.11 crore) of the total
sales during the quarter ended September 2002 as against 46%
(Rs 24.66 crore) during the quarter ended September 2001.
However, this represented a fall of 39% year-on-year
but a rise of 3% quarter-on-quarter. For the financial year
ended March 2002, sales from HNS services had contributed
42% (Rs 98.66 crore) as against 36% (Rs 71.46 crore) during
the year ended March 2001.
The sales from 'Other Services', i.e. services to customers
other than HNS, were up 11% to Rs 24.49 crore and contributed
47% (41%) during the quarter. Also, this represented a growth
of 17% sequentially. Higher volumes contributed towards this
sequential growth.
The products business had witnessed a sequential fall during
the quarter ended June 2002. It has performed relatively well
during this quarter with 79% rise in sales to Rs 12.5 crore,
24% (13%) of the total sales. This also represents 6% rise
in sales sequentially. The sequential growth was on
account of closure of certain deals, which spilled over from
the previous quarter ended June 2002.
On the future outlook, managing director Arun Kumar said
, "We have already implemented several measures to diversify
revenues and have cost structure more commensurate with revenues.
Our strategy to aggressively grow existing relationships in
the OEM / TSP segments is showing progress.
We expect that the HSS strategy of diversifying in to new
verticals will show the desired results in the medium to long
term. The broadened offerings will help HSS de-risk its business
and reduce dependence on the telecom vertical."
On the flip side, the Hughes Software stock is under-owned
by institutions.
Last updated : February 2, 2004
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