Shares in IT firm CMC have witnessed selling pressure after the firm’s third-quarter earnings showed flat revenues. The stock had run up around 25 percent in the previous month ahead of its earnings and, post declaration, tanked over 8 percent in early trade.
While consolidated net sales witnessed flat growth at Rs 561 crore (compared to Rs 560.74 in the previous quarter), operating profit rose 2.7 percent from Rs 88.4 crore to Rs 90.8 crore. The company’s net margins were up 4.8 percent to Rs 70.5 crore from Rs 67.3 crore. All three numbers were below analysts’ consensus.
Also read: CMC Q3 PAT up 16% yoy at Rs 70.54 cr
However, in an interview with CNBC-TV18, CMD R Ramanan attributed the firm’s laclustre showing to seasonality.
Outlining the firm’s progress in the quarter, he said CMC added 14 clients in the last quarter and saw growth in mining, e-governance and transport verticals.
Talking about the outlook for fiscal year 2014-15, he said revenues from India may be pressured as decision making slows around the election, but Ramanan said the second half would be better.
CMC also sees opportunities in the international markets in FY15, the CMD said.
Q: The stock is getting punished. Can you take us through the quarterly performance and what might have disappointed investors on the street?
A: We have had a flat revenue growth quarter-on-quarter growth but that was in line with what we had also anticipated because the third quarter is always traditionally weak in terms of international growth given the furloughs and the holidays.
But if you look at it from a year-on-year basis, the revenue performance has been up by 14 percent. And for CMC, you have to take a longer perspective than just quarter-on-quarter because we are in a project-driven business.
We do a lot of SI projects and some projects have the benefit of completion and milestones and acceptances and therefore revenue accruals during a particular quarter.
The more important thing is we have been able to grow our profit after tax to Rs 70.54 crore, which is a 5 percent growth quarter-on-quarter and it is a 16 percent growth year-on-year.
Also, what is heartening is our international revenues have grown by about 13 percent year-on-year so that is again in spite of the fact that Q3 is furlough quarter we have been able to grow on a year-on-year basis.
We added about 14 clients in this quarter, four of them in the international market and 10 of them in India. The growth has been in the strong areas of CMC which is e-governance, transportation, mining, hospitality and manufacturing.
Q: What is the guidance for the full year, I guess visibility there is very good but more importantly if you can tell us something about FY15 both in terms of volume, billings and margins?
A: We see continued opportunities for CMC for growth in the international market during the calendar year 2014-2015. We have been able to build a good base of new customers in the year till date, adding about 49 customers and quite a few of them are in the international markets.
So we will see some benefits out of those new clients accruing in the year. We are also seeing good opportunities for CMC in the Middle East Africa for the solutions that we have particularly in transportation, e-governance, ports and cargo as well as in general insurance.
In the Indian markets, we do see challenges in decision making during the next quarter particularly because of the elections. So whatever we are able to do during the first half of the quarter is going to benefit but subsequently we believe that there would be decision making. However we see the second half of the year as a good opportunity for CMC to grow even in the domestic market.
Q: You have seen a margin appreciation this time around but going ahead if you have to sustain your margins at 16-17 percent levels then what would be the key segment driver which is the segment that will actually drive higher operational efficiencies?
A: We have seen margin improvement of about 40 bps during this quarter and our focus will be to continue sustaining these margins through both cost optimization as well as efficient cost management. We do see the drivers for margins as the SI business, the real time business as well as the digitization and workflow management business in the international markets.
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