DBS recommends buy on Digital

NEW DELHI: Research firm DBS Securities has recommended a buy on Indian

computer software services firm Digital Equipment India Ltd. (DEIL), citing a

rising trend in quarterly revenues and a big jump in the number of employees.

DEIL is 51 per cent owned by Compaq, which accounts for 89 per cent of DEIL's

annual revenues.

In a report dated December 4, analyst Chetan Shah forecast DEIL would

maintain the rising trend in quarterly revenues seen since September after a

relatively flat performance in the preceding three quarters.

DEIL's three-month revenues jumped to Rs 404.7 million in the quarter ended

September, compared with flat sales of between Rs 180 million and Rs 280 million

in the last three quarters.

The firm has also boosted employee strength to 1,000 from 479 in March and is

set to raise the number to 1,200 by next March.

"Considering these factors, we believe that the stock is under-priced

vis-a-vis its peers... (and) has the potential to reach a price of Rs 650 within

the coming 12 months," Shah said.

The analyst said he was not concerned about the fact that Compaq accounts for

89 per cent of DEIL revenues. He said Compaq was unlikely to stop doing business

with DEIL because software services account for a major source of the US

company's revenues.

Software services accounted for over $5 billion of Compaq's revenues in the

nine-months to September.

Shah expects the firm's sales to increase by 122 per cent to Rs 1.81 billion

in 2000-01 (April-March). Net profits are likely to go up by 65 per cent to Rs

459.6 million, which works out to an earnings per share of Rs 14.

On Wednesday, the Digital stock ended Rs 6.75 lower at Rs 508.30, in line

with an overall weak market. The 30-stock benchmark Bombay exchange index was

down 1.6 per cent at 4,086.41 points. At Rs 508.30, Digital is down 68 per cent

from its calendar high of Rs 1,569 on January 20, but is 46 per cent higher than

its low of Rs 346.25 on October 19.

(C) Reuters Limited 2000.