Sasken Comm: buyback advantage

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The share price of Sasken Communications, a software company that focuses on the broadband and wireless software space, surged 23% on Monday based on the announcement that the management would buy-back shares from the open market at around Rs 260 levels. This offer represents 9.45% of the aggregate of the company`s paid up equity capital and free reserves. The share price has consistently risen from sub-100 levels over the past one month. Earlier, the company announced that it has reported a net profit of Rs 39.4 crore for the year ended March 31, 2008. There has been an increase of 20% in the total revenue to Rs 570.21 crore for the year ended March 31, 2008 as compared to Rs 477 crore in the previous financial year.The company also reported an increase of 44% in the net profit to Rs 14.8 crore in the quarter ended March 31, 2008 as compared to the corresponding quarter previous year.

However, analysts reckon that Sasken’s expertise of developing embedded communication software for companies across the communication value chain, might not be allow the company to meet its strong guidance for FY09. The management guided at 25% to 29% growth in IT services business with EBITDA margin expansion of 300-500bps over FY08. And this would not happen because of two major reasons, first is the threat of the semiconductor and telecom OEMs, which account for around 62% of its revenues.

Volume growth is also unlikely, says a Merrill Lynch report, as there is little scope for increasing utilisation rates that are already high at 75%. Secondly, the company, with a 21% attrition rate will find it difficult to manage input costs. Then they also point out that the company could not meet the guidance it had made during FY08 as well.