SW minors steal a march over the biggies

MUMBAI: A lot of talk is in the air about stabilizing billing rates, volume growth and stabilizing margins, when it comes to software industry. How true is the phenomenon? As per an IRIS study of 109 companies that declared their results for the quarter ended September 30, 2003, on a sequential basis, the industry has witnessed 100 basis points improvement in operating profit margins from 27.28 per cent to 28.28 per cent. Operating profit of the sample witnessed a jump of 12.29 per cent during the period.

Net profit margins have also witnessed improvement of 80 basis points, mainly derived from higher operating profit, rise in other income and lower interest cost. However depreciation reported rise of 8 per cent during the period.

On a year on year basis, operating profit and net profit margins declined by 86 basis points and 11 basis points, respectively.

One interesting observation about the results reveals that smaller firms have done better, compared to their large and medium size peers on margins front, when compared on a sequential basis. Large firms reported marginal rise in operating margins, while medium size firms reported decline in profitability, despite a double-digit growth in software revenues. Though small firms posted a marginal rise in the top-line, their profits improved sharply.

Further, a look at the companies having revenue in excess of Rs 100 crore (nine such companies — Wipro, Infosys, Satyam, HCL Technologies, CMC, I-Flex, Digital, Polaris and NIIT) reveals that OPM is better compared to the overall average. However, quarter on quarter improvement in OPM for these companies is 68 basis points, against 100 basis points for the entire sample. Apart from this, NPM remained flat at 21.26 per cent.

Mid cap

The picture is dismal when we consider companies having sales between Rs 50 crore to Rs 100 crore (six companies). Though these companies reported impressive 13.76 per cent jump in net revenues and 14.59 per cent in total income, the group`s OPM and NPM reported an erosion of 147 basis points and 60 basis points, respectively.

Small companies (Revenue less than Rs 50 crore)

The real action was in the small companies (94 companies) during the September, 2003 quarter. This group witnessed a marginal improvement in net sales, however witnessed 291 per cent jump in net profit on the back of 22 per cent jump in operating profit. OPM and NPM improved by 371 and 500 basis points, respectively.

 Source: IRIS