SSI Q1 net jumps, share falls

By : |October 30, 2000 0

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

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

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.

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