DIGITAL GLOBALSOFT: Keeping the Slowdown at Bay

While the Indian IT sector continues to reel under slowdown pressures, one

company that has bucked the trend is the Bangalore-based subsidiary of Compaq

Inc–Digital Globalsoft, earlier known as Digital Equipment. Unperturbed by the

slowdown in the global economy and the demand for IT, Digital has continued

reporting excellent performance quarter after quarter. The company’s first

quarter performance for the period ended June 2001 was no different and it

surpassed the street expectations by a huge margin.

The 51% Compaq-owned company provides software services in the area of

e-applications, systems engineering, enterprise solutions, e-infrastructure and

telecom. In the first quarter ended June 2001, Digital’s revenues jumped 125%

to Rs 73.24 crore whereas the net profit was up by a whopping 233% to Rs 19.20

crore. The sequential growth in revenues and net profit was 12% and 4%

respectively. Revenues from e-applications stood at 44% of the total revenues,

followed by enterprise solutions at 21%, systems engineering at 20%,

e-infrastructure at 12% and the balance from telecom. While its parent Compaq’s

contribution to the revenues was down from 89% to 85%, business from other

clients grew from 11% to 15%. The company added 58 employees taking its total

employee strength to 1,246. The company also added a 400-person capacity in

Bangalore and is further expanding its capacity to more than 4,000 software

professionals.

During the quarter, the company purchased Electronic Data Interchange (EDI)

from Compaq on which Digital had earlier provided engineering support. The

company plans to enhance the features of EDI and make it an international level

product. The company also entered into an MoU with Toshiba where Digital will be

the software development partner for Toshiba’s semiconductor business. Digital

is also making inroads into the European market, having forged relationships

with EDV Systems Beratung as channel partner.

Until a few months ago, Digital’s dependence on Compaq was seen negatively.

However, with revenue growth becoming essential for survival, Digital’s

association with Compaq provides it with strong foundation for revenue

visibility. The company plans to continue to focus on Compaq and also add

independent clients to its list.

Digital is currently traded at Rs 483 discounting its projected March 2002

EPS by 19 times and March 2003 EPS by 13 times. Considering its spectacular

performance and its association with Compaq, which provides it with excellent

revenue visibility, we believe that there is little downward risk from the

current levels. Accumulate.

Sushanto Mitra is the founder

of Technology Capital Partners 



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