The relatively slower revenue growth for the year was largely on account of the second quarter of 2002-03, in which both revenue and post-tax earnings growth fell on a sequential basis.

The decline in OPM is attributable mainly to pressure on billing rates, which appears to have been an industry-wide phenomenon.

For the full year, the OPM dipped by 2.6 percentage points to 29.3 per cent.

Operational metrics

In the fourth quarter of 2002-03, Digital managed to record an overall improvement in its operational profile.

In line with its objective of broadbasing revenues from non-HP customers, it has added 21 new customers in the latest quarter, with 15 in the services and nine in the products space.

For 2002-03, the non-HP customer base rose to 20.5 per cent from 15.3 per cent in the previous year. If one adds the projects billed to HP but for which the end-users were external customers, an additional 7 per cent has to be accounted for under this head in 2002-03.

This is the first time Digital has identified this separately as HP-billed external customers. Leaving these two categories, HP still accounted for 72.3 per cent of the revenues of Digital in 2002-03.

In the latest quarter, the contribution of offshore revenues was the highest at 38 per cent compared to the remaining three quarters of 2002-03.

Digital ended 2002-03 with a 36 per cent contribution from offshore and balance 64 per cent from onsite.

Onsite contribution continues to remain high, though Digital is progressing in the right direction.

With recruitments of almost 1,000 employees this year, the offshore momentum is expected to pick up further this year.

Uncertainty continues

There is always the possibility of a full- or part-merger of Digital with HP-ISO (India Software Operations), an unlisted subsidiary of HP in India.

In end-January, the Digital management indicated that the future business and operating structure of the company was under review by a committee of independent directors.

While examining the various options for Digital, this committee has been charged with the responsibility of protecting minority shareholder interest.

However, a conclusive decision on this issue has not been taken so far. At a per share earnings of Rs 32, the stock trades at a price-earnings multiple of 16 times its 2002-03 earnings.

With the economic environment in the US continuing to remain weak and pricing pressure set to intensify in the coming months, there may be a further churning in the price-earnings multiple of Digital and the industry as a whole.

The uncertain outlook on the possible merger between Digital and HP-ISO too has not helped to stabilise the stock valuation. In this backdrop, shareholders may contemplate paring exposures on an uptrend.

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