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Closing in on its peers - Views on News from Equitymaster
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  • Jan 22, 2000

    Closing in on its peers

    A lot of fund managers have an unlikely infotech (IT) stock in their portfolio - Software Solutions Integrated Limited (SSI). What makes this revelation even more eye-opening is the fact that SSI ranks higher in the portfolios than its accomplished IT-training peers - NIIT and Aptech. This serves to underline the potential of this company, notwithstanding its rather belated entry in IT-training.

    It was the early 90s and the software boom in the country was showing signs of taking off, when K S Suresh launched Software Solutions Integrated Limited (SSIL). The company made its mark as a plain vanilla software services company, before the promoters decided to break into the lucrative infotech (IT) education segment.

    With just one training centre in Chennai, the company has come far from its humble beginning in 1991. Set against the backdrop of IT training giants like NIIT and Aptech, the company remained unruffled and went about its business of expanding across the country. From being a local player in the South, the company enhanced its presence into other regions in the north (Delhi, Chandigarh), west (Bombay, Pune, Ahmedabad) and east (Calcutta). This growth was financed by the company's initial public offering (IPO) in December 1994, when it placed 2.4 million shares at par (which is unthinkable in today's frenetic IPO scene).

    (Rs m) 2QFY2000 2QFY1999 Change
    Revenues 344 171 102.0%
    Other Income 6 4 51.0%
    Expenditure 226 106 113.0%
    Interest 4 9 -63.0%
    Depreciation 36 10 260.0%
    Profit before Tax 85 49 73.0%
    Tax 18 10 75.0%
    Profit after Tax/(Loss) 68 39 72.0%
    Net profit margin (%) 19.6% 23.0%

    SSI has been focussed in its strategy and has differentiated its expertise smartly from those of NIIT and Aptech. The latter forayed in the lower-end of the IT-training segment with an accent on the longer duration courses (2-4 years). This left a vacuum for the shorter duration courses (1-6 months) at the higher end of the IT-training segment. SSI moved in to fill this void. It began offering courses allowing software professionals to replenish their skills in Sybase, Oracle and new languages in Java and Visualbasic, which constitute the higher-end of the IT-training segment. While NIIT and Aptech have focussed on penetration, SSI has always been more clear-sighted in matters of technology.

    One fact that highlights SSI's commitment to technology is a steady stream of investments (6-7% of revenues) in research on devising new training modules. It relies on feedback from corporates for gauging the industry's IT requirements and then frames courses accordingly. Another innovative move on the company's part has been 24-hour training centres and extensive courses to keep the training faculty updated with the latest trends in software.

    But a harsh fact that SSI continues to face is that it still has some way to go before it becomes a brand like NIIT and Aptech. However, a major consolation for the company is that its margins are relatively secure as compared to NIIT and Aptech who have witnessed shrinking margins at the lower-end of the training segment.

    Given the saturation in the domestic training market, SSI will find it difficult to sustain the blistering pace of the past two years. Moreover, there are few entry barriers in this business. SSI itself started from scratch and is now challenging the likes of NIIT and Aptech. This can be duplicated by any other IT-training company which has the financial muscle to establish a network of franchisees and owned centres. International IT-education companies won't find this too difficult.

    But that has not stopped the company from bagging prestigious projects. It is in talks with NASDAQ for a mutually beneficial relationship to provide software services. SSI is also planning to acquire vertically-focussed software product companies and has earmarked US$ 3.5 million with this objective. But it has set a time-frame for itself and will drop its acquisition plans if it can't zero in on a target company within the time-frame.

    As far as training is concerned, SSI will continue to grow by enhancing its presence across the country. Taking a cue from Aptech and NIIT, it also plans to establish a presence in the international markets like Singapore, Dubai, Malaysia and Bangladesh. The management is confident of turning into a global player in 3-4 years.

    Battlelines are clearly demarcated between SSI on one hand and NIIT and Aptech on the other. Ultimately it will boil down to how fast SSI can grow vis--vis its peers. As demand for quality professionals rise, the race for IT-training will continue to remain on the upswing. It is anybody's guess who will exploit the pent-up demand more effectively.



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