This guidance translates into revenues in the range of Rs 297.5-308.5 crore and profit after tax of Rs 53.1-54.9 crore. Since Hughes failed to meet its financial projections for 2002-03 by a long chalk, what inspires confidence this time around? There are two reasons: One, it has an order backlog of about $32 million as of March 31, 2003, spread across services, products, Business Process Outsourcing (BPO) and a part of the order from Lucent Technologies.

This works out to almost half the projected revenues of Hughes for 2003-04.

Two, though there is lack of clarity on the future trends in telecom, Hughes has managed to revive some of its old relationships with leading international players such as Cisco and Alcatel.

This is in addition to expanding/widening the relationship with its existing clients such as Nokia, NEC and Johnson Controls.

Then, there is the three-year outsourcing deal for $30 million from Lucent Technologies signed in February.

As part of this deal, Hughes has added nearly 186 employees of Lucent to its count, and proposes to set up a software development centre in Nuremberg, Germany, and expand its Bangalore facilities.

However, it appears that Hughes has factored in the pressure on the billing rate and higher investments in its diversification moves to project a conservative a net profit margin of only 17.8 per cent, up from 17.2 per cent in 2002-03. This may be an achievable for the year.

As the growth of the product business is likely to be modest, Hughes is focussing its energies on expanding its non-HNS (Hughes Network Services) and TSP clients in the coming year.

It aims to use a combination of organic and non-organic (through acquisitions in the telecom, BPO and BFSI arena) initiatives to propel growth.

Watch out for concerns

In addition, Hughes may also be exposed to receivables risk. For instance, as of March 31, 2003, the break-up of debtors shows that out of total debtors of Rs 72.9 crore, about Rs 16 crore (or 22 per cent) were due for "180 days and above".

In this "180 days and above" basket, the management has stated that it has decided to convert Rs 11.7 crore (our of Rs 16 crore outstanding) due from a customer into an equity investment. In mid-April, it was still in the process of obtaining the requisite approvals for conversion. This is likely to affect the future cash flows of the company.

Exploring inorganic initiatives to enter the BFSI arena may seem a good strategy, but the challenges of integrating an acquisition and making it EPS-accretive will remain.

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