Sushil Finance neutral on Sasken Communication

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Sushil Finance neutral on Sasken Communication

Sushil Finance has maintained neutral rating on Sasken Communication, in its April 30, 2011 research report.

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Sushil Finance has maintained neutral rating on Sasken Communication , in its April 30, 2011 research report.

"Sasken Communication reported disappointing performance during Q4FY11, on account of a sharp decline in its Revenues from products segment, sluggish business environment in Europe and change in strategy with one of its key customers (Nokia) to migrate its software platform, which had impacted its handset business. During Q4FY11, its consolidated Revenues (including forex gains/losses) declined by 7.6% QoQ & 18.8% YoY to Rs 1,281.3 million. Its Revenues from software services segment grew by just 0.3% QoQ, but declined by 23.2% YoY to Rs 1,051 million, while Revenues from telecom software products declined by 59.6% QoQ & 12.8% YoY to Rs 87.3 million. Its Revenues from network engineering services declined by 2.3% QoQ, but grew by 5.1% YoY to Rs 113 million. The employee utilization also fell to 62.1%, while attrition rate remained at an elevated level of 31.4%. However, the company has taken steps to curb the attrition and improve utilization, which is expected to get better gradually during FY12."

"During Q4FY11, Its consolidated EBITDA (including forex gains/losses) declined by 39.4% QoQ & 46.3% YoY to Rs 168 million, while its EBITDA margins fell sharply by 690 bps QoQ & 670 bps YoY to 13.1%. The sequential fall in its margins can be attributed to sharp decline in its high margin products business. However, its consolidated APAT stood at Rs 187.8 million, i.e. a growth of 19.4% QoQ and but a decline of 13.9 % YoY. The Company has a healthy balancesheet with high net cash and cash equivalent in excess of Rs 1,850 million (i.e. about Rs 70 per share) as of March 31st, 2011. Going forward, the management expects its Products business to generate Revenues in the range of USD 1.8-2.0 million on quarterly basis but considering the uncertain business environment, the management did not provide overall Revenues growth guidance for FY12 but expects its EBITDA margins to be maintained at 18% level."

"Nokia is the largest customer of Sasken and contributes about USD 25 million to its annual sales. The recent move of Nokia to transfer 3,000 of its employees to Accenture (by the end of 2011) to work on the Symbian operating system and eventually work on Nokia's implementation of Microsoft's Windows Phone OS is likely to have a negative impact on Sasken's growth going forward. Nokia contributes around 20% of its Revenues and Sasken may witness gradual decline in business from Nokia on the back of above development."

"Sasken has delivered a muted performance for FY11 and could not meet it revised guidance. During the period, the growth of its software services business was adversely affected, primarily due to shifting of R&D base of some customers at high cost locations to low cost locations along with sluggish business in Europe, especially in countries such as Finland, Denmark & UK. During Q4FY11, Nokia's decision to switch to Microsoft's Windows Phone-7 software from its own Symbian software and a recent deal to outsource its Symbian software to Accenture is going to affect Sasken's future growth. Considering its FY11 muted performance, the current business situation and uncertainty about Nokia's business, we expect FY12E to remain challenging for Sasken as it has to address the attrition issue along with along with replacing the fall in Nokia's Revenues from growth in the android space / other accounts. Hence, we have reduced our FY12E Revenues & APAT estimates. The CMP of Rs 161 discounts its FY12E earnings of Rs 22.7 by 7.1x. Considering the sudden change in the scenario for Sasken, we believe its performance in the coming few quarters might remain muted & the stock may underperform in the interim period. Hence, we change our rating on the stock to Neutral (from Buy) and recommend investors to liquidate their holdings at the current price," says Sushil Finance research report.

Institutional holding more than 40% in Indian cos

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To read the full report click on the attachment