Satyam's results prove the end of Y2K projects does not mark the onset of difficult times for the country's software companies. Over the last three quarters, most companies have pruned their exposure to Y2K projects and have instead shifted to other areas like e-commerce.

Infosys saw the contribution from Y2K projects fall from 12.1 per cent in the quarter ending June to 9.4 per cent in the quarter ending September. In the same period, Satyam saw the contribution from Y2K projects fall from 19 per cent to 5 per cent. While e-commerce projects accounted for 10.3 per cent of Infosys' revenues in the quarter, Satyam saw e-business opportunites contribute 15 per cent to its topline.

Satyam Computer's increased focus on e-commerce projects has resulted in improved profitability for the company during the quarter ending September. While the company's income from software operations has increased by 15.5 per cent quarter-to-quarter to Rs 154.62 crore, operating profit has risen by 19 per cent to Rs 61 crore. Operating margin has improved from 37.5 per cent to 38.9 per cent. This has not been the case with Infosys which saw its operating margin fall during the period.

However, as Infosys' e-commerce revenues increase, profitability is likely to improve. Being a smaller organisation, Satyam has perhaps been quicker in re-orienting itself to cater to the emerging opportunities thrown open by the proliferation of the internet. Of the 25 new customers that the company added during the quarter, almost a third are doing purely internet related projects.

Considering the quick pace at which the net is growing, Satyam's focus on e-commerce projects can only be expected to improve its future prospects. However, just like Infosys, Satyam Computers is heavily dependent on North America for business. Both the companies derive over 75 per cent of their revenues from this region. Any slowdown in the US-economy would have a significant bearing on the fortunes of these companies.

BFL Software

BFL Software's financial results for the quarter ended September are hardly inspiring. While the company's income from operations has been stagnant at around Rs 28.70 crore, operating profit has fallen by 11 per cent to Rs 5 crore as compared to the quarter ended June. The figures, of course, do not take into consideration the Rs 2.2 crore that the company has provided towards the amortisation of deferred compensation resulting from its ESOP plan. Though the company is not bound to do so, it has voluntarily provided for the expense.

Operating margin has fallen from 19.5 per cent to 17.5 per cent. Clearly, the company is yet to come out of the hangover from the loss of its valued client, Compaq. Yet it needs to be recognised that the company appears to have weathered the storm and the current quarter should see a turn in its fortunes. Both profits and profitability should improve during the quarter. However, it will take considerable time and effort before the company is able to achieve the kind of profitability it used to until last year. For the last two quarters of 1998-99, BFL achieved operating margins of over 30 per cent.

The company has been making consistent efforts to broadbase its revenues and has added 9 new clients during the quarter ending September and has opened new offices in Tokyo, Toronto, Sydney and Amsterdam this year. It has placed special emphasis on areas such as e-commerce, web enabling of applications and object oriented systems. The acquisition of the German company Complex Software Systems is complete and the company has launched its internet products Kio and Netkiosk. Besides, it has begun to get contracts from the ING group for insurance services, which could open up a new opportunity window for the company. These initiatives should stand BFL Software in good stead in thefollowing quarters.

Oil Prices

After touching a 33 month high of $24.30 high, crude oil Brent fell by almost 15 per cent. Oil prices dropped steadily for the entire previous week. However, during this prices have rebounded.

Various reasons have been advanced for the drop in oil prices. Apart from the fact that funds had booked profit, after oil prices more than doubled, there were some fundamental reasons also behind the drop in prices. One of the reasons was the news that the level of compliance with output levels by the OPEC nations had dropped to 80 per cent. Further there was news that Norway planned a big rise in production next year. Also oil ministers of Saudi Arabia, Venezuela and Mexico planned to meet in November to discuss oil cuts.

Also, a Reuters survey carried out last week indicated that OPEC compliance with output cuts had slipped in September compared to August. This further affected sentiment.

Further, data came in from the International Energy Agency (IEA) suggesting that oil stockpiles in industrialised countries fell only slightly in August and may have actually risen in the third quarter as a whole despite OPEC production curbs.

Oil inventories in member countries slipped only marginally by about 60,000 barrels per day (bpd) in August. OECD stockpiles appeared to have risen in the third quarter of the year. This picture is against the expecations that production cut by OPEC would lead to a drop in inventory levels and a drawdown in stocks. What this proves is that there is hardly any improvement in the demand situation. The IEA report further says that European demand in 1999 was looking much weaker than expected despite signs of economic recovery.

Inspite of these fundamentals, oil prices rebounded in the current week. This was on account of statements from Iran that OPEC might extend the production cut beyond March 2000. If this does take place recovery of some of the Asian economies is likely to be prolonged. Asia imports around 60-70 per cent of its crude oil requirement of 19.1 million barrels. Companies in these countries have not passed on the entire rise in oil prices. Newsreports say that the Philippines has increased retail prices by only 30 per cent as compared to an over 100 per cent jump in crude oil. Though Thailand raised its prices to record levels last week it had to cut back again on Friday. In India too the hike in diesel prices of 40 per cent in one stroke has raised an outcry.

Thus if OPEC nations decide to increase the period for a production cut Asian markets will continue to remain affected. Demand has failed to pick up since the time production has been cut, it is unlikely that extension of the period will improve the situation as currencies of Asian companies which are major importers of crude are likely to be hit further, including that of India.

Crompton Greaves

The second quarter results of Crompton Greaves are depressing. Probably for the first time, the company's second quarter performance is worse than the first quarter. As a result of net loss in the second quarter of Rs 22.63 crore, the net loss for the first half of 1999-2000 is Rs 36.42 crore. Only a miracle will result in the profit for the current year being at par with the previous year.

The basic problem with the order book of Crompton is that it includes projects which have not achieved financial closure like Sujana Power Project though at least in this case, achieving financial closure is almost a formality.

The Operating profit margin of the comapny's power division is the highest and at the begining of the year, order book was just Rs 301.43 crore (Rs 477.11 crore) and Sujana Power Project which accounted for 34 percent of the order book and 65 percent of the order book of the Industrial Division will not contribute anyuthing to the bottomline in the current year.

However, what the market is banking on is the demerger which will result in formation of three companies and Power and Industrial divison will form one company. Together the PBT of these two divisions is almost twice that of Crompton Greaves.

Compared to the first quarter, expenditure has gone up by 31 per cent and sales only by 26 per cent and the Operating Profit Margin as a result is lower in the second quarter. Till Sujana Project reaches a stage where the company can start booking profit on the project, Crompton Greaves' performance will not improve dramatically. The expected one time huge cash flow because of the sale of the company's stake in Skycell is also one of the reasons preventing a free fall in the scrip.

EMCEE (with contributions from Sarad Saraf, Shishir Asthana and Urmik Chhaya)