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Offshore projects raise Silverline margins

NetScribes/Abhijit Basu

A continued focus on offshore activities and a decreasing dependence on its top five clients has helped Silverline Technologies register a 87.23 per cent jump in net profit to Rs 350.2 million for its fourth quarter ended December 31, 2000.

The company also registered a 46.43 per cent jump in net sales to Rs 749.1 million for the same period. The share of revenues from offshore activities went up to 36 per cent during the quarter, up from 25 per cent in the previous corresponding quarter.

"The margins and billing rates are higher in offshore projects. This led the company to focus more on these areas, and rightly so, as it has positively impacted the company's bottomline," said Manish Agrawal, senior software analyst at Pranav Securities.

The company's net profit margin grew to 46.74 per cent in the latest quarter, from 36.56 per cent a year back. The operating profit margin too rose to 50.55 per cent 39.18 per cent.

The revenue contribution of the top 5 clients went down to 31 per cent in the quarter from 46 per cent a year back. "The acquisitions the company has made in the past year have helped the company spread across geographies and sectors, thereby reducing dependence on its biggest clients," said a senior software analyst with Span Capital Services.

Operating expenses also rose 38.46 per cent to Rs 450 million. Analysts believe that the increased expenses by the company's overseas subsidiaries and amortization of goodwill for acquisitions of TIS Worldwide, Sky Capital International and CIT Inc, have hiked the company's operating expenses in the quarter. Agrawal pointed out that the amortization will continue for a few years and will affect the company's operating expenses for that while.

Meanwhile, the company's non-operating income jumped 463.82 per cent to Rs 80 million. Of this amount, Rs 18.7 million accrued due to exchange rate variations during the quarter, the company clarified.

The stock markets, however, have not taken kindly to the results. The scrip fell 2.18 per cent to Rs 251.15 on Thursday at the BSE. At its current market price, the scrip is trading at a forward earnings multiple of about 52, with an annualised EPS of Rs 4.79 for FY01 ending December 2001.

However, analysts felt that this is a technical correction for the scrip. "The scrip rose Rs 51 is the last three days, and is just undergoing a correction," said Madhavi Vohra, managing director of ULJK Securities.

"The scrip has posted a series of progressively higher tops and bottoms and ultimately peaked at an all-time high of Rs 1,395 in the week to February 25, 2000.Silverline also gave a downward bar reversal during the same week and has been on the decline ever since. Currently, the scrip has turned downward after facing selling pressure at Rs 260, but the position of the weekly mechanical indicators suggest further appreciation from these levels," she added.

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