| May 3 - 16, 1999 |
|
|
Software stocks
CORRECTION IS OVER
Though the growth rates in the current year are expected to be about 50-70% compared to 100% in FY 9903, infotech companies continue to hold good potential
Software companies continued to post strong growth rates in the fourth quarter, ending the year 9903 with record performances. But prices of scrips fell across the board. After a long time, software scrips under- performed the market indices. There are mainly two reasons for this confounding phenomenon. First, due to political uncertainty, the markets, on the whole, went down significantly. This forced operators to reduce their long positions, which were mainly in the software stocks. Moreover, these were the only stocks which were still offering an opportunity to book profits to compensate for losses in other scrips. Second, there was a perception that software companies were slowing down.
The startling performance in the third quarter raised expectations from the fourth quarter to unrealistic levels. Hence the end result is a sort of anti-climax - though the report cards are excellent, they are below the market's over-expectations.
Market players are no longer impressed by the year-on-year growth rates or even growth rates of the current fourth quarter over that of the corresponding previous fourth quarter. Quarter-to-quarter growth rates are the new yardsticks. Even though Infosys has reported a 98% growth in sales and 124% growth in net profit for FY 9903, and equally high growth rates for the fourth quarter, 93% in sales and 126% in net profit, they have failed to impress. The reason: sales and net profit growth in the fourth quarter over that of the third quarter are just 8% and 9% respectively compared to sales and net profit growth in the third quarter of 16% and 41% respectively over the second quarter. Satyam's case is even worse as its fourth quarter's net profit is 3% lower than that in the third quarter with sales growth also meagre at 7%. In this sense, most companies have experienced a slowdown.
However, analysts tracking the software industry continue to be bullish. Says Manish Gunwani, software analyst, SSKI Securities, 'The results are more or less in line with our expectations. We expect the growth rates to be around 60% for the current year. Y2K projects will go off and Y2K is having a dominant effect on IT investment. Many in the US are wary of starting new projects till the end of this year.' Adds he, 'One should go for the best. Companies with lots of revenue from mainframe services should be avoided. Those oriented towards client server and Internet services should be considered.'
Confirms Supratim Basu, analyst, ASK Raymond James Securities, 'The results are more or less as per expectations. A slowdown is likely and earnings growth can be expected to be around 70-75% from last year's 100%. We are still overweight on the infotech sector and would stick to large cap stocks like Infosys.' Confides Vivek Mavani, equity analyst, Parag Parikh Financial Advisory Services, 'I think the growth rates would settle down between 40-50%, which are more sustainable in the long term since companies can't keep on doubling their growth rates every year. In absolute terms, there will still be a substantial incremental growth. Hence I would not term it as a slowdown.' Adds he, 'However, one could see a rerating of the companies in the sector. Companies like Silverline and DSQ don't seem to be sustaining value. Infosys, NIIT, Aptech and PSI Data are the companies which have the potential and on which I am bullish. To sum up, the boom which took over the whole sector/software industry will be now limited to good individual stocks.'
Declares Abhijit Attavar, analyst, ICICI Securities, 'The results are as expected. And I don't think there's any slowdown. I expect the growth rates to be around 70% in the current year. And we are overweight on this sector. There are a couple of undiscovered gems. Like, for instance, Digital Equipment, Sonata Software and BFL Software.' Agrees an analyst at a large securities firm, 'The results have met my expectations. However, the growth rates this year are expected to decline, but they would not be as low as 35% as some market players fear since, on an average, Y2K contributes only 25% in top companies. The main reason for the slowdown is the delay in software implementation abroad, which has pushed most of the non-Y2K- spending forward. I would like to switch to those companies which have lower exposure to Y2K like Wipro, NIIT and Aptech and smaller cap companies like PSI Data System. My best scrip would be NIIT.'
To sum up, though growth rates of software companies will come down from around 100% in FY 9903, it is unrealistic to expect otherwise. Still, the 50-70% growth rates that are being projected for the current year will continue to keep the software industry in the highest growth bracket. It is the only industry which will remain unaffected by the political developments, rupee depreciation (which, in fact, is a positive for the industry) and economic slowdown. While economic recovery will pushcyclical stocks up sharply from their very low valuations, the software sector will continue to be attractive. It must be noted that infotech is the most exciting industry and new growth opportunities are being created on a continuous basis. And most of the leading software companies have shown that they have the capacity to capitalise on these opportunities to the hilt. Thus we feel that the correction in software stock prices is over and that they will steadily go up. Our best bets are NIIT, Infosys, Digital Equipment and Satyam Computer. Traders can venture into Pentafour Software also.
Pentafour Software & Exports
Multimedia magic
Pentafour Software and Exports reported a 101% jump in sales to Rs 177.7 cr in the fourth quarter ended Mar.'99. Its growth rate for the full year 9903 is 85%. However, OPM came down substantially from 50% to 33% in the latest quarter. For the full year also, OPM is down from 45% to 38%.
The major boost to the bottom line came from only a modest rise in interest. Interest expenses grew only 9% for the full year. In the fourth quarter, there is an interest income of Rs 1.51 cr compared to an expense of Rs 6.75 cr in the fourth quarter of the previous year. Notably, the company has pre-paid Rs 104.30 cr of its high-cost borrowings and has applied to the ministry of finance seeking permission to pre-pay its external commercial borrowings (ECBs). And towards this end, liquid cash is available in the form of bank deposits.
Depreciation rose 54% to Rs 59.91 cr for the full year, but it grew only 9% to Rs 19.58 cr for the fourth quarter. Capital expenditure is Rs 79 cr in FY 9903 as compared to Rs 154 cr in FY 9803.
Net profit rose 74% to Rs 119.12 cr for the full year and 108% to Rs 40.23 cr for the fourth quarter. Equity has risen to Rs 19.97 cr due to the allocation of 29.30 lac shares @ Rs 700 per share on 15 Feb.'99, and amounting to Rs 205 cr.
While the EPS for FY 9903 is Rs 59.6 (on the fully diluted equity), the annualised EPS for the fourth quarter is Rs 80.6.In view of the positive outlook for the current year, a total dividend of 70% and a bonus in the ratio of 1 : 1 has been recommended.
The multimedia segment has contributed 54% (Rs 284 cr) to the turnover, while the business software segment has contributed 46% (Rs 242 cr). The current order book stands at $ 149 mln, to be executed in the next 15 months. It consists of $81 mln in the multimedia segment and $ 68 mln of the business software segment. Chairman and managing director V Chandra- sekaran informs, 'Two years from now we foresee ourselves to have grown at an average rate of about 50%.'
The multimedia segment's contribution to turnover has increased by 54% for the period ended 31 Mar.'99 as against 48% in the corresponding period last year. The multimedia segment is divided into two SBUs (strategic business units), namely, 2D/3D/special effects and CBT/CD titles/multimedia products. The contribution of the 2D/3D/special effects SBU to the turnover is 42.36%. The order book of this SBU is $ 63.85 mln, to be executed by Mar.2000.
The CBT/CD titles/multimedia products SBU has contributed 11.63% to the turnover. The company's CD titles division has brought out 25 new titles in addition to the existing 79 titles in the half-year. Pentafour Software is considering the shifting of the replication part of the CD-Rom project to Dubai Airport Free Zone to capitalise on the rich volume market in the UAE and Europe. The order book for the CBT/CD titles/multimedia products segment is $ 17.30 mln, to be executed in the next 15 months.
=========================================================================
Fall in interest boosts growth rate
=========================================================================
9903(3) 9803(3) Var.(%) 9903(12) 9803(12) Var.(%)
=========================================================================
Sales 177.7 88.34 101 525.68 284.56 85
OPM (%) 33 50 38 45
Operating Profit 58.30 44.08 32 202.23 128.54 57
Interest -1.51 6.75 - 23.20 21.23 9
Gross Profit 59.81 37.33 60 179.03 107.31 67
Depreciation 19.58 18.00 9 59.91 38.94 54
Tax - - - - - -
Net Profit 40.23 19.33 108 119.12 68.37 74
EPS (Rs)* 80.6 38.7 - 59.6 34.2 -
=========================================================================
* on an equity of Rs 19.97 cr Figures in Rs cr
Source: Capitaline Ole
=========================================================================
The business software segment consists of four SBUs, namely, banking/financial services, insurance, ERP and technology solutions. The technology solutions SBU has been formed during the quarter to spearhead the company's efforts in emerging technologies/application areas like e- business solutions, distributed computing (CORBA, COM/DCOM), data warehousing, data mining, etc.
The banking & financial services SBU has contributed 9.17% to the turnover. The key achievements of the SBU are the ongoing projects for a Fortune 500 financial services major which is the second largest issuer of credit cards and for a major car rental conglomerate in the US. This SBU has also bagged orders from, among others, Invest Bank & National Bank, Dubai, Corporation Bank and Indian Bank during this quarter. The company has an arrangement with IBM and its business partners for marketing 'PentaBank' in the Asian region. There has also been a rapid improvement in the company's presence and acceptance in the Middle East market. Its order book is $ 11.24 mln, to be executed in 10 months' time.
The insurance SBU has contributed 8.34% to the turnover. The order book for the insurance segment is $ 9.10 mln, to be executed by Mar.2000.
The ERP SBU, providing enterprise solutions, contributes 20.23% to the turnover. 'PentaWorks', its ERP solution targeting the SMEs, is now available in NT, SQL Server & Visual Basic platforms and the same is being marketed through Microsoft and its business partners in Asia. Pentafour Software, US, has successfully developed an extended enterprise framework (EEF) package independently and will interface with leading ERP packages (such as SAP, J D Edwards, Peoplesoft, Oracle Applications and Baan) and technologies such as bar code appliances, personal data assistants, etc., enabling clients to experience better and quicker return on investment by integrating devices and sub-systems with the ERP. The next initiative on the agenda is the formation of a core group as a part of this SBU to offer solutions in the realm of business process re-engineering. The order book for the ERP segment is $ 41.43 mln, to be executed in the next 15 months.
The technology solutions SBU contributes 8.26% to the turnover and has witnessed plenty of action with orders from Deal Tech Corporation and Premier Internet Corporation, US. The US operations will offer leading-edge e-commerce implementation solutions through its certification with IBM net.commerce and by providing seamless integration of e-commerce solutions with clients' existing ERP applications. This SBU has an order book of $ 6.12 mln, to be executed over the next six months.
=========================================================
Pentafour Software
OP margins are under pressure
=========================================================
(%) Q4 Var Q3 Var Q2 Var Q1 Var
=========================================================
Sales 101 91 71 68
Operating Profit 32 78 57 76
Interest -122 58 159 14
Gross Profit 60 82 40 93
Depreciation 9 38 65 224
Tax - - - -
Net Profit 108 103 29 47
=========================================================
Note: All variances (%) are over the corresponding
period in the previous year
=========================================================
VisualSoft (India)
From Y2K to Euro
A 307% spurt in sales to Rs 10.83 cr and 623% jump in net profit to Rs 4.48 cr in the fourth-quarter 9903 have helped VisualSoft (India) to report a 219% growth in sales to Rs 30.32 cr and a 310% growth in net profit to Rs 11.61 cr for the full year 9903. While the full year EPS works out to Rs 18.6, the fourth-quarter annualised EPS comes to Rs 28.7.
Despite being a relatively new and small company, VisualSoft has diversified its business operations. To have a better control over its operations, it has classified its business areas into four strategic business groups, namely, Open Systems, Cyberwing, Y2K and re-engineering and R&D. However, currently, the major portion of the revenues comes from Y2K consulting services. The company has developed methodologies for conversion jobs, especially for the IBM mainframe environment, and created a product called VisualShift. The product enables Y2K compliance of PC- based database and spreadsheet applications by customers without the help of external consultants. VisualSoft has tied up with Platinum Technology Inc, US, (now in merger talks with Computer Associates, US), to distribute the Y2K product. The first unit of the product, which was launched by Platinum Technologies in July this year, was sold in August. VisualSoft expects to earn Rs 16 cr from this product by the end of the century. In FY 9903, it earned Rs 4.93 cr from the same.
========================================================================
Y2K product pumps up performance
========================================================================
(var in %) 9903(3) 9803(3) Var. 9903(12) 9803(12) Var.
========================================================================
Sales 10.83 2.66 307 30.32 9.51 219
OPM (%) 47.2 30.1 43.1 36.4
Operating Profit 5.11 0.80 539 13.07 3.46 278
Interest 0.00 0.01 -100 0.05 0.07 -29
Gross Profit 5.11 0.79 547 13.02 3.39 284
Depreciation 0.48 0.17 182 1.26 0.56 125
Tax 0.15 - - 0.15 - -
Net Profit 4.48 0.62 623 11.61 2.83 310
EPS (Rs)* 28.7 4.0 18.6 4.5
========================================================================
* on an equity of Rs 6.25 cr Figures in Rs cr
Source: Capitaline Ole
========================================================================
The revenues from VisualShift will be limited to the year 2000. To cover the shortfall post-Y2K, Visual-Soft is eyeing the euro conversion segment aggressively. It has developed a methodology for euro conversion and also developed a product called Visual E Shift. Marketing of Visual E Shift is also tied up with Platinum Technologies.
=======================================================
Quarterly progress card
Such high growth rates cannot be sustained
=======================================================
(%) Q4 Var Q3 Var Q2 Var Q1 Var
=======================================================
Sales 307 196 231 114
Operating Profit 539 262 195 112
Interest -100 -50 -50 0
Gross Profit 547 268 200 115
Depreciation 182 207 7 60
Tax - - - -
Net Profit 623 279 237 125
=======================================================
Note: All variances (%) are over the corresponding
period in the previous year
=======================================================
Infosys Technologies
Cash-rich
Infosys Technologies has yet to show any signs of a slowdown. Its fourth- quarter growth rates of 93% in sales and 126% in net profit compare very well with the growth rates recorded in the previous three quarters. For the full year 9903, sales show a growth of 98% to Rs 508.89 cr and net profit has grown 124% to Rs 135.27 cr. Declared N R Narayana Murthy, chairman and CEO, 'We had growth across all our geographical and business segments. The investments during the earlier years in creating marketing infrastructure and improving productivity levels have strengthened the company and positioned it well for a market that continues to be competitive and dynamic'.
During fiscal year 1999, 82% of the total income was from North America (82% in fiscal year 1998), 9% from Europe (9% in fiscal year 1998), 7% from the rest of the world (6% in fiscal year 1998) and 2% from India (3% in fiscal year 1998). Among the business segments, software service sales contributed 97% to the total income during fiscal year 1999 (96% during 1998), while product sales contributed 3% (4% in 1998). The revenue from fixed-price, fixed-time frame contracts and from time and materials contracts remained constant at 36% and 64% (of the total income for fiscal years 1999 and 1998) respectively.
Revenue from Y2K remediation services was approximately 20% during fiscal year 1999 as compared to 23% during 1998. The revenue from the Y2K business during the quarter ended 31 Mar.'99 was approximately 15% as compared to 19% during the third quarter of fiscal year 1999. The revenue from Internet and e-commerce solutions was approximately 4% during 1999 and 1998.
The offshore component of the software services income in fiscal year 1999 was approximately 57% of the total revenue, while the on-site component was approximately 43%, as compared to 58% and 42% respectively in 1998.
Infosys added 39 new customers in 1999 and 10 new customers this quarter. Some of the customers added this quarter include The Boeing Company, Paradyne Corporation and AMP. Dell Computer, Japan, (Dell Japan) chose Infosys to build some of its e-commerce applications. These systems will help operationalise Dell Japan's aggressive e-commerce strategy to conduct 50% of its business on-line.
This year, Infosys opened an office in Seattle in the US and shifted its branch in Maastricht, Netherlands, to Frankfurt, Germany. The total number of marketing offices overseas now stands at 13, with nine marketing offices in the US and four in other countries. The company continues to stress on the importance of building long-term relationships with its customers. Repeat business was 90% in fiscal year 1999 as compared to 83% in 1998. The top five customers contributed 28% of the total income in fiscal year 1999 as compared to 35% in 1998. The top ten contributed 44% in fiscal year 1999 as compared to 50% in 1998.
Infosys increased its employee strength to 3766 as on 31 Mar.'99 from 2605 as on 31 Mar.'98. There were 3389 software personnel at the end of 31 Mar.'99. Of these, 277 are still undergoing training and 180 belong to the banking product group. The total employee strength and the number of software personnel at the end of the last quarter ending 31 Dec.'98 was 3501 and 3150 respectively.
In the fourth quarter, Infosys commenced the construction of Phase I of its software development facility at Pune Infotech Park, Hinjawadi, Pune. This phase is expected to be completed by 30 Sep.'99 and will be spread over a built-up area of 1,83,000 sq ft. It will comprise four software development blocks with a total capacity for 1200 professionals. The progress on the new facility - Infosys Park - at Electronics City, Bangalore, adjoining the existing facility, is satisfactory. One more block with a total built-up area of 42,600 sq ft and a capacity to accommodate up to 350 employees was made operational during the fourth quarter. Infosys Park now has a capacity to accommodate up to 1215 employees on a total built-up area of 1,67,600 sq ft. The computers and communication block with a total area of 23,000 sq ft was commissioned during the quarter. Infosys Park is scheduled for completion by Dec.'99 and will accommodate up to 2000 software and support professionals.
=========================================================================
Proper deployment of the huge surplus cash holds the
key to future growth
=========================================================================
(var in %) 9903(3) 9803(3) Var. 9903(12) 9803(12) Var.
=========================================================================
Sales 151.92 78.65 93 508.89 257.66 98
OPM (%) 42 36 38 34
Operating Profit 63.42 28.03 126 194.10 88.62 119
Interest - - - - - -
Gross Profit 63.42 28.03 126 194.10 88.62 119
Depreciation 14.42 7.43 94 35.89 22.75 58
Tax 5.90 1.51 291 22.94 5.50 317
Net Profit 43.10 19.09 126 135.27 60.37 124
EPS (Rs)* 52.1 23.1 40.9 18.3
=========================================================================
* on an equity of Rs 33.07 cr Figures in Rs cr
Source: Capitaline Ole
=========================================================================
The operating cash flow for fiscal year 1999 was Rs 158.86 cr as compared to Rs 57.78 cr during 1998. Cash and cash equivalents as on 31 Mar.'99 were Rs 416.66 cr and formed 73% of the total assets. Excluding the ADR proceeds, cash and cash equivalents were 46% of the total assets. A capital expenditure of Rs 71.68 cr was incurred during the year as compared to an expenditure of Rs 34.41 cr in the previous year.
Infosys was listed on NASDAQ on 11 Mar.'99. The objectives of the listing were to institute an ADR-linked stock option - for attracting and retaining the best and brightest professionals across the world, to grow non- organically by way of acquisitions, and to enhance the company's image. Infosys has instituted an ADR-linked stock option plan and granted 213,000 options (equivalent to 2,13,000 ADRs and 1,06,500 equity shares) to some of its employees. The options are issued at fair market value as determined by a committee of the board of directors. Infosys has also initiated the move to set up a new rupee-denominated employee stock offer plan for its employees, both in India and abroad. The scheme is subject to approval of the members in the ensuing annual general meeting to be held in Jun.'99. The company has set aside 3.3 million shares to be issued under this scheme in the future years.
Due to the ADR issue, Infosys' equity increased by Rs 1.03 cr and reserves bulged by Rs 278.5 cr (after netting off the Rs 17.33-cr ADR issue expenses). On the fully diluted equity of Rs 33.07 cr, the EPS works out to Rs 40.9 and book value works out to Rs 163.7. The fourth-quarter annualised EPS works out to Rs 52.1.
============================================================
Quarterly progress card
No signs of a slowdown
============================================================
(%) Q4 Var Q3 Var Q2 Var Q1 Var
============================================================
Sales 93 91 98 115
Operating Profit 126 123 97 130
Interest - - - -
Gross Profit 126 123 97 130
Depreciation 94 57 25 39
Tax 291 419 308 213
Net Profit 126 120 105 157
============================================================
Note: All variances (%) are over the corresponding period
in the previous year
============================================================
Satyam Computer Services
Another ADR candidate
Satyam Computer Services reported 112% rise in sales to Rs 378.13 cr and 142% jump in net profit to Rs 72.8 cr. However, its growth rate has been continuously coming down during the year. Sales growth, which was 166% in the first quarter, fell to 156% in the second, 128% in the third, and further to 66% in the fourth quarter. Similarly, growth in gross profit has come down from 167% in the first quarter to 73% in the fourth quarter. Net profit growth has also been falling, except in the fourth quarter wherein growth rate is exceptionally high (364%) due to high write-offs of depreciation in the fourth quarter of FY 9803, which depressed profits. A 1:1 bonus has been declared. The company, like Infosys, intends to go in for an ADR issue. The FY 9903 EPS stands at Rs 28 and the fourth-quarter annualised EPS works out to Rs 29.7.
Informs B Ramalinga Raju, chairman, 'These are exciting times at Satyam. During the last year we have taken certain initiatives that augur well for the company. We are one of the very few companies in the world which have achieved SEI-CMM Level 5 Assessment. This will build customer confidence in our ability to provide a global standard of service. The mergers of the three subsidiaries with the parent company further strengthen our company's service and product portfolios. VisionCompass, a business performance measurement solution developed by us, is already at an advanced stage of beta testing and will soon be launched in the global market.'
=========================================================================
Set to become a full-service IT player
=========================================================================
(var. in %) 9903(3) 9803(3) Var. 9903(12) M9803(12) Var.
=========================================================================
Sales 107.00 64.53 66 378.13 178.49 112
OPM (%) 40.0 38.1 38.8 37.7
Operating Profit 42.82 24.58 74 146.69 67.23 118
Interest 7.80 4.31 81 26.44 11.98 121
Gross Profit 35.02 20.27 73 120.25 55.25 118
Depreciation 14.53 15.15 -4 42.95 22.89 88
Tax 1.20 0.96 25 4.50 2.30 96
Net Profit 19.29 4.16 364 72.80 30.06 142
EPS (Rs)* 29.7 6.4 28.0 11.6
=========================================================================
* Annualised on an equity of Rs 26.02 cr Figures in Rs cr
Source: Capitaline Ole
=========================================================================
The company has proposed that the three subsidiary companies, Satyam Enterprise Solutions Ltd., Satyam Renaissance Consulting Ltd., and Satyam Spark Solutions Ltd. be merged with the parent company, Satyam Computer Services Ltd., with effect from 1 Apr.'99.'
During the year ended 31 Mar.'99, Satyam Enterprise Solutions posted a turnover of Rs 38.11 cr as compared to Rs 11.51 cr in the corresponding previous year, thereby registering a growth rate of 231%. The company's net profit zoomed to Rs 7.05 cr as compared to Rs 0.83 cr during the last year. Satyam Renaissance Consulting has declared total sales of Rs 3.68 cr and a profit after tax of Rs 0.08 cr. Satyam Spark Solutions is set to commence commercial operations shortly. The consolidated performance of the companies proposed to be merged will record total revenues of Rs 419.92 cr and net profit of Rs 79.94 cr for the year ended 31 Mar.'99. The company had retained KPMG for valuation of the subsidiaries. As a result of the merger, its equity will be diluted by 3.07%.
The primary objective of setting up the subsidiaries was to acquire upstream capabilities in the IT value chain as rapidly as possible. Over the last two years, the subsidiaries have been able to successfully create distinctive competencies in select high value-added areas. Accordingly, the management decided that it was an opportune time to merge all the subsidiaries, except Satyam Infoway, into the parent company. Satyam Enterprise Solutions has been able to quickly develop a telecom domain- specific capability and also ERP (Oracle Financials, SAP) delivery expertise. It has executed a number of technically challenging projects in several parts of the world. Satyam Spark Solutions has developed VisionCompass, an enterprise level performance measurement product that has wide appeal. For commercial reasons, it made more sense to set up an independent subsidiary in the US to attract the necessary capital for marketing and further enhancing this product. VisionCompass Inc. now owns this product. Satyam Renaissance Consulting has executed a number of projects in the area of manufacturing process improvements, supply chain management and groupware-enabled process innovations in other industries.
A positive outcome for the parent company would be the opportunity to leverage the new skills and the added client base to further enhance its business. The merger also enables Satyam to become a complete IT services player offering consulting, systems integration, products and application development and maintenance services. Coupled with its SEI Level 5 quality rating, this gives it a major competitive edge in the market place.
The contribution of Y2K projects towards total revenues was 28%. North America contributed 80% to the revenues. The share of the four main lines of businesses, viz. insurance, banking & finance, telecom and manufacturing, was 76% during the current year. Offshore and on-site businesses contributed 76% and 24% to the revenues respectively. While fixed bids contributed 31% to the revenues during the year ended 31 Mar.'99, the share of T&M contracts was 69%.
The company has added 11 new customers during the fourth quarter, thereby increasing the count to 41 new customers for the whole year. Satyam's total associate strength increased to 3582 from 2255 as on 31 Mar.'98.
There were 3106 technical staff as against 3059 by end-Dec.'98. Along with its subsidiaries, Satyam's strength stands at 4381 as against 4165 at the close of the third quarter. In Mar.'99, Satyam became one of only ten companies in the world to achieve Level 5 assessment, and only the second company to achieve it enterprise-wide.
The setting up of offsite development centres is progressing smoothly. Commercial operations have commenced at all the US development centres, while development facilities at Japan, UK and Singapore are being established.
==============================================================
Quarterly progress card
Growth rates are falling
==============================================================
(%) Q4 Var Q3 Var Q2 Var Q1 Var
==============================================================
Sales 66 116 142 166
Operating Profit 74 128 156 161
Interest 81 121 178 133
Gross Profit 73 130 151 167
Depreciation -4 260 291 254
Tax 25 120 150 175
Net Profit 364 90 113 137
==============================================================
Note: All variances (%) are over the corresponding period
in the previous year
==============================================================
NIIT
Best of the lot
For the first-half 9903, NIIT has reported 40% growth in global revenues (including those of its subsidiaries) to Rs 419.09 cr. Net sales revenues are up 33% to Rs 270.75 cr. OPM has been maintained around 19%. Interest expenses came down by 56% and depreciation grew only 17% compared to last year's growth rate of 82%. Net profit, as a result, shot up 72% to Rs 28.51 cr. For the full year 9909, the company can be expected to report an EPS of Rs 43.
NIIT continued to benefit from the implementation of EVA for performance management systems and gross revenues per person per month rose by 14% while the net profit per person per month increased by 39%. Efficient management of capital reduced interest costs by 56%.
The business is now split in two parts - software and learning services - as against three business units earlier. The software business contributed 54% and the learning business contributed 46% of the total revenues at Rs 224.6 cr and Rs 194.4 cr respectively. International operations have netted 53% of the revenues to the company while domestic operations have contributed 47%. International business grew 51% to touch Rs 221.7 cr. The US operations grew 69% to contribute Rs 109.2 cr to the total revenues. While the software business grew 45%, revenues from learning services are up 36%.
In the second-quarter 9903, NIIT bagged the first offshore project for educational multimedia software development from Microsoft Corporation as well as a repeat order for product development and customer training from Computer Associates. The company is also working on large e-commerce-based software contracts for Computer Logic and First Wave Technologies, a leading provider of web-based customer relationship management systems. In Europe, British Airways gave the company a repeat order for software.
To execute software contracts from its Middle East-based client, Aramco, NIIT is setting up a dedicated software factory at Delhi. NIIT's education and training network expanded to over 845 centres worldwide. The company also bagged a letter of intent from the Malaysian government to develop the science curriculum for the Smart Schools project. Malaysia is NIIT's largest overseas market for computer training with over 14 NIIT education centres.
Declares Vijay K Thadani, president and CEO, 'With our experience in offering IT solutions for governments, we are gearing up to cater to the opportunities being thrown open in the areas of government informatics. We are executing large training orders for the income tax department and the ministry of railways.' Some of the key projects being executed by NIIT include Y2K-related consultancy services for ITC and software projects for Kribhco and Indian Oil. Says Rajendra S Pawar, managing director, 'Our alliances with global partners, including the top three software companies - Microsoft, Oracle and Computer Associates - will be leveraged to take NIIT's world-class software, educational multimedia and training solutions to global customers.'
NIIT's growth strategy to enhance market access will be furthered by the proposed acquisition of a software projects company in the US. When asked if NIIT had firmed up its plans for an ADR issue and global listing, Thadani said, 'We have no plans for an ADR issue now. For the acquisition, we have already tied up the requisite funds.'
To build a world-class delivery capability, NIIT has inducted Shrikant Inamdar as head of the software business. Inamdar was earlier managing director of Motorola's software operations in Australia and has helped set up software facilities in Sydney and Adelaide. He was responsible for creating India's first SEI CMM Level 5 organisation as general manager of Motorola at Bangalore. NIIT's software factories were assessed at SEI CMM Level 3 in Jul.'97 and the goal is to prepare the organisation for assessment at SEI Level 5 before this year is out.
==========================================================================
NIIT
Software revenues rise 45%
==========================================================================
(var in %) 9903(6) 9803(6) Var. 9809(12) 9709(12) Var.
==========================================================================
Sales 270.75 204.16 33 457.62 324.3 41
OPM (%) 19 19 34 32
Operating Profit 50.70 39.42 29 153.37 105.20 46
Interest 3.96 9.00 -56 10.65 16.70 -36
Gross Profit 46.74 30.42 54 142.72 88.50 61
Depreciation 13.23 11.32 17 29.37 16.10 82
Tax 5.00 2.50 100 5.00 4.50 11
Net Profit 28.51 16.60 72 108.35 67.90 60
EPS (Rs)* 43.0# 28.0 17.6
==========================================================================
* on an equity of Rs 38.65 cr # projected Figures in Rs cr
Source: Capitaline Ole
==========================================================================
Mastek
Changing strategy
Till FY 9806, Mastek was an odd exception in the software industry. When the latter was reporting bumper growth rates, Mastek was reporting fall in profits! The company suffered a major setback in the south east Asian market in FY 9806 due to the economic turmoil there. It had, at the start of the year, deployed about 100 professionals for this region and that went up to about 140 during the course of the year. The slowdown resulted in a drastic fall in productivity and increased operating costs. As a result, the company's operating margins fell from 28% to 19%.
Consequently, the company has shifted most of its professionals from the Asia-Pacific region to the western regions where the prospects are much better.
==========================================================================
Back on the growth track
==========================================================================
(var in %) 9903(9) 9803(9) Var. 9806(12) 9706(12) mVar.
==========================================================================
Sales 39.95 29.14 37 37.03 32.78 13
OPM (%) 18.5 18.5 19.2 27.9
Operating Profit 7.38 5.40 37 7.10 9.13 -22
Interest 0.95 1.18 -19 1.50 2.36 -36
Gross Profit 6.43 4.22 52 5.60 6.77 -17
Depreciation 2.65 2.43 9 2.78 2.82 -1
Tax - - - 0.08 -100
Net Profit 3.78 1.79 111 2.82 3.87 -27
EPS (Rs)* 14.6 6.9 8.2 11.2
==========================================================================
* annualised on an equity of Rs 3.46 cr Figures in Rs cr
Source: Capitaline Ole
==========================================================================
In the domestic market, Mastek vends Ingres, the RDBMS package from
Computer Associates. The contribution to turnover from Ingres was approximately Rs 4.5 cr (of the total domestic revenue of Rs 6 cr). It
commands around 14% of the RDBMS market in India, lagging behind Oracle,
Sybase, Informix and, more recently, Microsoft SQL. There is not much scope
for this business.
Mastek's other products, too, had a bad run. Comshare's EIS range of products and LBMS, a software development tool are among them. The company has also developed an ERP package, called Mamis, which was launched in 1995. With a host of ERP packages available in the market today, Mamis' performance has not been up to the mark. Mastek has recently modified its ERP strategy with a new offering - Goldmine. The product primarily caters to the supply chain management needs of medium-sized companies. The company has sold the product to Bausch & Lomb and Videocon.
Mastek developed Xcalibur and Picador for the securities trading business. The poor state of the brokering business due to the fall in stock prices has shrunk the market for such products, with a dim chance of recovery.
However, from the current year, the company has changed its strategy. Focus has shifted from products to services, and from the domestic market to exports. Even within exports, the focus is now more on western markets than the south east Asian ones. The restructuring has already started yielding results. In the first nine months of 9903, sales have risen 37% to Rs 39.95 cr and net profit has bulged 111% to Rs 3.78 cr. The sharp improvement in the profit margins are mainly due to the fall in interest expenses and slow growth in depreciation. The annualised EPS works out to Rs 14.6.
===================================================
Quarterly progress card
Restructuring pays off handsomely
===================================================
( %) Q3 Var Q2 Var Q1 Var
===================================================
Sales 74 20 25
Operating Profit 80 20 6
Interest -29 -9 -17
Gross Profit 118 26 13
Depreciation 41 7 -14
Tax
Net Profit 193 48 82
Note: All variances (%) are over the
corresponding previous period
===================================================
R S Software
What after Y2K?
RS Software has reported a 57% rise in sales to Rs 40.99 cr and a 98% jump in net profit to Rs 6 cr for FY 9903. However, in the fourth-quarter 9903, sales are lower by 6% at Rs 12.36 cr and net profit shows only a 14% growth to Rs 1.51 cr.
The company specialises in IBM mainframe platform and legacy systems. This has helped it bag substantial Y2K business. The current year being the last of this century, the Y2K business will be at its peak. Volume as well as rates would be the highest in the next nine months. This should help R S Software report a substantial jump in revenues and profits for FY 0003.
======================================================================
R S Software
Y2K work will ensure that the next nine months will be
a period of peak performance
======================================================================
(var in %) 9903(3) 9803(3) Var. 9903(12) 9803(12) Var.
======================================================================
Sales 12.36 13.12 -6 40.99 26.14 57
OPM (%) 19.1 14.8 22.0 21.1
Operating Profit 2.36 1.94 22 9.01 5.51 64
Interest 0.4 0.27 48 1.59 1.27 25
Gross Profit 1.96 1.67 17 7.42 4.24 75
Depreciation 0.45 0.34 32 1.42 1.21 17
Tax - - - - - -
Net Profit 1.51 1.33 14 6.00 3.03 98
EPS (Rs)* 12.7 11.2 12.6 6.4
======================================================================
* on an equity of Rs 4.76 cr Figures in Rs cr
Source: Capitaline Ole
======================================================================
But maintaining the higher revenues in the future might prove to be difficult as compensating the huge Y2K business with any other revenue stream will not be easy.
In this respect, the company's joint venture (jv) with Hanover Direct Inc., an e-commerce and catalogue marketer of branded products, is notable. Hanover Direct also has a comprehensive range of e-commerce and fulfillment-related services. In the jv, the two companies will work together towards the development of software, systems and programming for Internet and e-commerce-based applications. If R S Software succeeds in this new line of business, future prospects will be more reassuring.
=========================================================
Quarterly progress card
Growth rates have fallen drastically
=========================================================
(%) Q4 Var Q3 Var Q2 Var Q1 Var
=========================================================
Sales -6 101 113 147
Operating Profit 22 64 70 151
Interest 48 32 3 18
Gross Profit 17 75 89 241
Depreciation 32 21 7 7
Tax - - - -
Net Profit 14 96 121 580
=========================================================
Note: All variances (%) are over the corresponding
period in the previous year
=========================================================
Digital Equipment (India)
Software+MNC association
The market rumours proved correct finally! Digital Equipment (India) (DEIL) has announced the transfer of its domestic products and services business (which is not doing well) to Compaq India for a total consideration of Rs 88 cr. With cash resources of about Rs 62 cr already on the books, DEIL will have total cash resources of Rs 150 cr. This will be deployed in the expansion of its software exports business which will be its sole focus area in the future.
Already, the company has 300 software personnel, three software technology parks, 51,000 sq ft of office space, a customer base, skills across a range of technologies, service delivery capability from India, the US and Asia Pacific and sales offices in the US and Hong Kong.
Declares Som Mittal, managing director, 'Digital India in its new form will be able to unleash its software business potential and grow by providing software and services not only to Compaq but also to an independent client base. The company will now have the resources to set up additional infrastructure and fund growth.' Adds Kannankote Srikanth, chairman, 'The sale of the computer products and services division is only the initial step towards creating a successful software and services exports business in India. Our next step will be to build on the company's existing capabilities and develop competencies that will position the company as a world-class international software services company.'
A new management team (including CEO) focused on the software business will be created and a business plan prepared over the next few months. The transfer is expected to be completed by 10 Jul.'99 and will be effective from 27 Jun.'99. Hence, from the next accounting year onwards, DEIL will be a pure software company with a target of being among the top 5 software companies in India in 2001.
While DEIL will continue to enjoy the preferred supplier status with the Compaq group, whose software and service requirements are themselves growing fast, it will also look to new clients, capitalising on the strategic relationship with Compaq and its own strengths. This will bring out the full potential of the software business as hitherto DEIL was supplying only to Compaq. Confides, John T Rose, senior VP and group general manager, Enterprise Computing Group, Compaq Computer Corporation, 'Compaq is very excited by the opportunity to create a leading software and services exports business through Digital in India. It's the right time, the right place and fits our global strategy.' This is the best thing to happen to DEIL, a 51% subsidiary of Compaq Computer Corporation, after the worldwide acquisition of Digital by Compaq and puts to an end all doubts about its prospects.
=========================================================================
Digital Equipment (India)
The domestic products business was responsible for the poor performance
=========================================================================
9903(3) 9803(3) Var.(%) 9903(9) 9806(12)
=========================================================================
Sales
Domestic compu. prod.# 40.24 85.52 -53 129.62 293.43
Software exports 18.13 14.88 22 54.16 57.14
Total 58.37 100.40 -42 183.78 350.57
OP
Domestic compu. prod. 2.08 8.50 -76 6.40 22.94
Software exports 8.04 6.62 21 22.80 21.83
Total 10.12 15.12 -33 29.20 44.77
OPM (%)
Domestic compu. prod. 5.2 9.9 4.9 7.8
Software exports 44.3 44.5 42.1 38.2
Total 17.3 15.1 15.9 12.8
Net int., dep., tax 2.88 4.25 -32 9.64 17.39
Net profit 7.24 10.87 -33 19.56 27.38
Extra-ordinary prov. 4.29 - 6.83 -
NP after extra-ord. items 2.95 10.87 -73 12.73 27.38
EPS (Rs)* 5.2 8.4
=========================================================================
# proposed to be sold off * on an equity of Rs 32.73 cr
Figures in Rs cr Source: Capitaline Ole
=========================================================================