SSI Q1 net jumps, share falls

CHENNAI: Software services and training firm SSI Ltd. said on Monday its net

profit quadrupled in the quarter to September 30 on the year, but analysts fear

rising staff levels are squeezing its margins.

The firm's shares were down nearly three per cent at Rs 2,242 on the Bombay

Stock Exchange after the results, while the benchmark 30-share Bombay index was

down 0.7 per cent at 3,701.5.

SSI said net profit in the first quarter of the fiscal year to June 2001 rose

to Rs 275.77 million ($5.9 million), from Rs 67.55 million in the year-ago

period.

Net sales in the three months to September 30 climbed to Rs 1.02 billion,

compared with Rs 344.3 million in the previous year.

The firm's other income in the quarter - which included Rs 59.54 million from

exchange rate fluctuations - also jumped sharply to Rs 121.24 million, from Rs

5.88 million in the corresponding year-ago quarter.

But analysts said disregarding the high other income, the firm's operating

margin had fallen from the preceding quarter, reflecting a sharp increase in

operating expenses.

"On the face of it, the results look phenomenal but if you look at the

preceding quarter, then you see a marginal fall in operating levels," said

Cholamandalam Securities analyst P Sridhar.

He said the operating margin in the first quarter was 29.3 per cent compared

to 41 per cent in the preceding quarter and 34.5 per cent in the year-ago first

quarter.

Sridhar said the fall reflected a sharp rise in the firm's staffing levels,

and was a cause for concern.

SSI said staff costs rose to Rs 89.21 million from Rs 34.08 million in the

year-ago quarter.

"It is a cause for concern because if you compare with a firm like

Infosys which too has had a sharp ramp-up in staff levels, they have maintained

operating margins and I see some downside for the share (SSI) in the near

term," he added.

In September, securities firm Cazenove & Co downgraded its rating on SSI

to "reduce" from "hold" on account of risks it said the rise

in staff levels would expose the firm to.

It cited a planned 376 per cent increase in staff to 2,500 employees by June

2001, which it said would make SSI vulnerable to execution risks ranging from

under-utilization of employees, to more onsite work and lower overall average

billing rates.

(C) Reuters Limited 2000.