Thursday, April 26, 2012

>GEOMETRIC: One‐off marred, otherwise a decent quarter

Geometric posted a steady revenue growth in line with expectations, however EBITDA margin deteriorated by 544bps QoQ to 12.5% due to extra ordinary items of expenditure & currency fluctuation. In our upgrade note in the previous quarter, we indicated presence in growth market, with focus on margins yielding stronger performance. But this quarter performance marred our expectation due to volatility. We retain ‘Accumulate’, with a TP of Rs80.

 Steady performance accompanied by lower than expected margins : Geometric reported in-line revenue growth of 2.7% QoQ to Rs2.25bn (PLe: Rs2.21bn, Cons:Rs2.20bn) and 5.4% QoQ in USD terms to $44.92m (PLe: $43.91m). EBITDA margin dipped by 544bps to 12.5% (PLe: 17.4%, Cons: 16.5%), due to rupee depreciation, higher utilization & extra ordinary items of expenditure. EPS degrew by 39.9% QoQ to Rs2.04 (PLe: Rs3.23, Cons: Rs3.15).

 Two‐fold performance – Revenue growth and margin expansion: We believe that the company’s strength in PLM and PES space is playing out well. The company’s ability to cross-sell strength of different geographies has started paying-off. We expect steady margin performance as these extra-ordinary is not going to be part in FY13. The management didn’t give detail for extra-ordinary.

■ Conference call highlight 1) Volume growth at ~5.1%, no change in pricing 2) New contracts amounting to $11.71mn awarded during the quarter (Q3FY12 : $3.55mn) 3) Total headcount is 4567 (Q3FY12: 4447) 4) Growth from emerging verticals like ship building, Oil & Gas & Energy 5) Effective tax rate to be ~28% for FY13 6) Fresher Hiring for FY13 to be ~200+ 7) DSO stood at 65.28 for Q4FY12 (Q3FY12: 71.36)

■ Valuation & Recommendation: We believe that Geometric’s operational performance is expected to strengthen from here. We expect a steady revenue performance for the company in FY13 with improved margins. We reiterate our ‘Accumulate’ rating, with a TP of Rs80, 6x FY13E earnings estimate.