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Software Edu Cos.: Leaner and Meaner - Views on News from Equitymaster
 
 
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  • Mar 22, 2001

    Software Edu Cos.: Leaner and Meaner

    The branded software education companies Aptech and NIIT are pulling up their socks. Bitten by the core competency bug NIIT plans to cut down on its non-core and less profitable businesses. The company has decided to sell its stake in its subsidiary NIS Sparta Ltd in order to focus more on the core activities associated with the objectives of the company.

    NIS Sparta was in the business of delivering sales training to individual customers. The company accounted for 1.5% of NIITís revenues and 0.4% of PBT (profit before tax) in FY00. The company (NIS) has shifted its focus from retail sales to change management for corporations. NIIT felt there was little synergy between the two companies and therefore, is divesting its stake. NIIT will earn Rs 97 m, from the sale of NIS to a consulting firm IQL that is into quality and change management.

    FY01 % of Revenues
    NIIT Consolidated 39.0%
    NIIT 61.0%

    NIIT has recently taken a beating in the stock markets after it issued a profit warning. The company expects its earnings to grow at a lower rate than expected due to the US economic slowdown.

    On the other hand Aptech with Mr. Khera at the helm has started a globalisation drive for its retail education and corporate training business. The company is planning to strengthen its business through working out alliances with brands like IBM, Oracle and Sun Microsystems. Alliance with companies like these do exist at a domestic level. Aptech is now looking to extend the alliance to a global level. The company is also considering a listing at the NASDAQ.

    % of Revenues Aptech
    Consolidated
    Aptech
    Training and Education 3.0% 97.0%
    Software & Consultancy 55.0% 45.0%

    With the success of India in the software sector many countries and their governments are more than willing to take a shot the software industry. This has opened up vast markets for software education companies and one of the popular destinations is China. Aptech already has a 50:50 JV with the Chinese government. The company plans to increase the number of overseas centres from 150 to 400 by the year-end. The internal target set by the company is to capture a 40% market share in the countries it is targeting. While in the emerging economies Aptech plans to target at the retail segment, in the developed countries like the US and UK the company would be targeting the corporate segment.

    Growth (FY00-FY01) Aptech
    Consolidated
    Aptech NIIT
    Consolidated
    Training and Education 26.0% 25.0% 30.0%
    Software & Consultancy 125.0% 39.0% 54.0%

    Aptechís stock had taken a severe beating on the news of restructuring. The company will evaluate the proposal to merge Hexaware Technologies with Aptech Ltd and creating two strategic business units. The markets had reacted negatively on fears of the software division of Aptech Ltd being merged with Hexaware, which is an unlisted company. The final decision will be taken after the board of directors submits their report on the various options of restructuring the business.

    But the message is quite clear from both the companies, the focus is going to be at a global level. It seem the brand wars we saw at a domestic level will be extended to the global level where these companies will vie for a share of markets.

     

     

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