Sasken’s topline in 1QFY2010 crashed as much as 17.1% q-o-q, touching Rs139.5 crore. This pathetic performance was due to the extremely poor performances of both its services and products businesses.
The company’s services business fell by 12.1% q-o-q, which was owing to a significant 6.5% q-o-q decline in volumes, a 2% q-o-q decline in pricing and a 4% impact owing to the lower realized Rupee rate (Rs48.26 v/s Rs50.26 in 4QFY2009, down 4% q-o-q).
Services revenues, in Dollar terms, fell by a significant 8.5% q-o-q to $28.7 million ($31.3mn in 4QFY2009). This comes on the back of an 11.6% q-o-q fall in 4QFY2009, which is a major concern for the company.
Thus, over the past two quarters, Services revenues in US Dollar terms have fallen over 19%, reflecting significant challenges being faced by the company.
The Networks Business continues to face pressure. Sasken had a total of Rs15.5 crore in receivables from Nortel as on June 30, 2009.
On the other hand, Product revenues crashed by nearly 90% q-o-q, with NIL Royalty revenues, with a few product launches failing to take off. Licence Fees crashed by a massive 94% qoq, while Customisation Revenues fell by 58% q-o-q. Thus, this has been a disastrous quarter for Sasken’s Products Business.
Going ahead, we expect Sasken to record a 3.9% compounded de-growth in revenues over the period FY2009-11E, while its bottomline is expected to record a 2.9% CAGR growth over the mentioned period (excluding one-time items).
Sasken continues to struggle to cope with the difficult business environment, and its key segment, Network Equipment Manufacturers, remains in consolidation mode.
The company’s Products Business turned in a disastrous performance this quarter and also reported an operating loss, which is a fairly disheartening factor.
The medium-term outlook remains hazy for Sasken, even as the company itself expects a recovery in 2HFY2010.
Owing to the pathetic performance on the Top-line front this quarter, we have downgraded our topline estimates for Sasken for FY2010 and FY2011 by 20% and 22%, respectively.
On the other hand, we have downgraded our margin estimates for the two fiscals by 410bp and 240bp, respectively, leading to significant EPS downgrades to the tune of 29% and 30%, respectively.
At Rs131, the stock trades at 5.8x FY2011E EPS. Post our Buy recommendation and after the company announced its 4QFY2009 results, the stock has rallied by 25%, thus comfortably surpassing our earlier target price of Rs127.
However, given this run up and the fact that we have downgraded our numbers significantly, we downgrade the stock to NEUTRAL.