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Aptech's net up on high other income

NetScribes/Rajiv Banerjee

A huge 2,500 per cent rise in other income and a 115 per cent growth in its global software business have enabled Aptech Ltd to post a 69 per cent increase in net profits for the third quarter ended September 30, 2000.

While the results are in line with expectations, analysts are concerned about the significant contribution of other income to the company's revenues and a below-industry-average growth in margins.

Net profits for the quarter have grown from Rs 150.35 million in Q3 2000 to Rs 253.50 million, while total income is up 24.27 per cent to Rs 1.56 billion (Rs 1.26 billion). Aptech's consolidated revenues, including those from its subsidiaries, have risen 41.25 per cent to Rs 1.88 billion from Rs 1.33 billion in the previous corresponding period.

"The topline and bottomline growth are good, in line with our expectations," says an analyst at Jardine Fleming. However, he says that a massive rise in other income is a cause for concern, considering it is a non-recurring income.

Other income has soared from Rs 1.58 million in the comparable quarter to Rs 41.6 million mainly on account of interest income from the proceeds of the company's GDR, which was issued this July.

On the Bombay Stock Exchange, after the results were announced, the Aptech scrip closed at Rs 355.55 on Monday - a loss of Rs 3.55 from its previous close. The counter witnessed total volumes of 0.3 million shares. Earlier in the day, the scrip reached a high of Rs 372.95 on buying interest. However, it later fell as institutions pressed sales on the counter.

For the quarter, Aptech's global software solutions business has registered a 115 per cent growth to Rs 484 million, while its global training revenues are up 23 per cent to Rs 13.56 billion. The growth in its global software business comes mainly from a 452 per cent growth in revenues from Aptech Worldwide, Aptech's 100 per cent subsidiary in the US.

At Rs 188.81 million, the contribution of the company's software business to its total global revenues shows only a marginal 8.44 per cent growth over Rs 174.1 million in Q3 2000. On the other hand, software revenues from other businesses (including Aptech Worldwide but excluding Aptech Ltd's business) have grown 488.68 per cent during the quarter to Rs 295.27 million.

Analysts say Aptech's focus on the global markets is understandable, given the rate at which the e-commerce business is growing globally.

"The US market is doing very well and e-commerce is growing at a much faster rate there than in India. So Aptech's strategy of having its global business focus on providing e-commerce solutions and the domestic business focus on providing solutions for offshore projects and portal development is beginning to pay off," says an analyst with a Bombay-based securities firm.

"This has also enabled the company to project a faster growth as compared to the e-commerce business in India," he adds. Revenues from Web and e-commerce have risen 426 per cent in the quarter and now contribute about 45 per cent to the total software revenues.

Despite the change in focus and huge growth in revenues, Aptech's margins continue to languish below the 25 per cent level. The gross profit margin for the quarter ended September 30, 2000 stands at 25 per cent, compared to 19 per cent in the same quarter last year.

During the quarter, margins came under pressure due to a 52.75 per cent rise in employee costs - the company's staff strength increased 35 per cent during the quarter - to Rs 77.63 million from Rs 50.82 million in the same quarter last year.

Net profit margin for the quarter is 16 per cent - a jump from 11 per cent in Q3 2000. But the margins are below the industry average of 32 per cent.

The training and education segment continue to be the prime driver, contributing about 85.28 per cent to the total revenues, while the contribution of the software business is 12.05 per cent.

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