The Hindu Business Line : GTL: Reject

The GTL stock trades at Rs 150, marginally lower than the offer price. Despite weak financials for the latest period ended March 2006, the medium-term potential may improve considering an extensive business restructuring being put through by the management.

Business

GTL's portfolio consists of two lines of businesses: Network engineering (offering solutions to telecom carriers and enterprises) and IT services (consisting of customer management solutions and BPO).

As part of its business restructuring exercise, GTL is hiving off its e-business infrastructure (part of IT services) to GTL Infrastructure, which will be listed separately.

Shareholders will receive one share in the new entity for every share held in GTL. It is also proposing to merge the wholly-owned subsidiary, GTL Technology Investment with GTL.

This scheme of arrangement, to be approved by the Bombay High Court, will be effective October 1, 2005.

The company has extended the financial year 2005-06 by three months to June 30, 2006 pending completion of restructuring.

Financials

The financials in the latest quarter and 12 months ended March 31, 2006 have slipped sharply compared to the previous year. For 12 months, GTL managed to maintain revenues at Rs 752 crore in line with the previous year, but a sharp rise in the cost of sales led to a slump in the operating profits.

Despite better control over selling and administration expenses, the operating profit margin slipped to 18.8 per cent from 27.7 per cent over this period.

From the segment-wise performance, it is clear that a sharp dip in earnings before interest and tax (EBIT) from the IT services segment has led to the overall drop in post-tax earnings.

Of an EBIT of the Rs 80.56 crore, the contribution of the IT services segment declined to 20 per cent from almost 50 per cent in the previous year.

The rationalisation of fixed and current assets proposed as a part of business restructuring and the creation of two focussed entities are likely to help GTL stage a recovery in the medium term.

Offer details

The offer being made by Global Assets Holding Corporation follows market purchases exceeding 5 per cent of the outstanding equity through the creeping acquisition route in a period of twelve months.

The offer is for 20 per cent of the outstanding equity at a price of Rs 151. Ind Global Corporate Finance is the manager to the offer. The offer opened on May 19 and closes on June 7.

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