THE FCS GAS IS CHOCKING INVESTORS 24-06-2013. Some redeeming features of FCS Software In the March 2013 qtr., FCS Software, appear to be a) its declining income from operations, seems to have been arrested because, it has clocked in an improved total income from operations at Rs. 13.83 crores, against Rs. 11.84 crores in the Dec.12 qtr. Before any investor starts singing and dancing about this performance, let us not overlook the fact that this “improvement” is a far cry from the Rs.30.74 crores achieved in June 2011 qtr., Rs. 24.99 crores (Sep.11), Rs. 21.81 crores (Dec.11), Rs. 20.48 crores (March 2012) and Rs.16.44 crores ( June 2012); b) It has broken the continuous quarter after quarter losing streak since Dec.11; c) Its annualised EPS which was negative (-0.04) in June 11, it has become positive @ 0.01 in the March 13 qtr. Negative features dwarf and render meaningless, these positives. Some of these are: a) Its burden of interest as a percentage cost of its operational income, has zoomed from 0.42%, in June 11 qtr., to 2.46% in March 13; b) Its net profit (after deducting other income, exceptional and extraordinary items), which was Rs.1.07 crores in June 11, has nosedived to Rs.0.47 crores in March 13; c) Its earnings to price ratio works out to 20 times, on a price of Re.0.20 per share. This ratio is unacceptably high for FCS,whose performance for years has been inconsistent and miserable; d) There does not appear to be any method in the madness in the capital investments it has been making and the value addition of such investment on its bottom line. Unless you are talking of a huge capital expenditure and long gestation period activity like building a steel mill or a ship building yard (which is not the case with FCS), the lower the content of depreciation charged, (expressed as a percentage of profit after taxes), the more efficient is considered the the use of such capital investment made. For this purpose, items shown as “other income”, “extraordinary items”, “exceptional items”, which often inflate the net profit and could mislead investors, should be excluded from “net profit after taxes”. Normally the lower depreciation as a percentage of net profit, the better is the efficiency of capital assets established,. Depreciation charged is sheer madness in the case of FCS Software. It was 138.32% in the June 11 qtr ,and hit 268.09% in the March 13 qtr., of the net profit (after above adjustments), casting a poor light on the efficiency of its capital assets utilisation. In qtr. ending Sep.2007, with an equity capital of Rs. 14.27 crores, FCS Software achieved a total income of. Rs. 49.41 crores and earned a net profit of Rs.8.02 crores. In qtr, ending June 2010, with its equity capital of Rs. 102.96 crores, (7.22 times increased equity capital), it had a vastly reduced total income of Rs. 28.13 crores, yet declared a vastly reduced net profit of Rs. 6.03 crores! In subsequent quarters it has been mostly losing, with incomes tumbling down except for the March 2013 qtr.! The impression one gets looking at the performance of the company, is that no one in charge of managing its affairs, has any clue on what is vision, what is goal setting, and how to strategise, achieving such vision objectives. There is also reason to suspect, if in recent quarters, using the facilities for producing but invoicing the output in some other name is being practiced. In a blurb which the company issued on 29-09-2012, FCS which was already in a deep mess, boasted “In the past 19 years of its existence, FCS has carved out a niche for itself in core IT areas like e-learning, digital content services, IT consultancy and product engineering services. Our customers include clients like GE, Credit Suisse, Canon, Metlife, Momentive Performance, Merck and many more Fortune 500 companies.” “We are a public listed and CMMi certified company.” “Our continuous growth has been made possible by the result of livewire, energetic and focused IT workforce of more than 1200 highly competent professionals” So much gas that has chocked thousands of gullible investors. Any wonder that the market price of FCS share (F.V. Re.1/-) has come down from Rs.10.53 on 30-11-09 by 98% to trade @ Re.0.20, at times “peaking” @ Re.0.25? Forget operator manipulation, the performance and the utter lack of credibility of the management, is what explains. N.Narasimhan
Posted on: Tue, 25 Jun 2013 08:49:02 +0000
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