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VisualSoft: Leveraging on existing technologies

Aug 28, 2000

VisualSoft Technologies Ltd. is often taken to be the benchmark for Indian information technology (IT) product companies. The company follows a de-risked business model harnessing the synergies of products, components and solutions. The company initially started from a client server product development model, which mainly involved back office technology and support service. After exploiting the Y2K and Euro booms, it has moved on to higher value added services/products. It adopted latest technologies like Java and with its packaged software products, addressed a host of solution areas like B2B technologies, net appliances, data storage and m-commerce

The optimal business mix and geographical mix has enabled the company to grow more than the industry growth rate. In the past 4 years, its revenues have grown at a CAGR (Compounded Annual Growth Rate) of 227% and profits at a CAGR of more than 300%.

Financials growing manifold
Year ended June (Rs m) FY97 FY98 FY99 FY00 CAGR
Total revenues 20 104 299 702 227.0%
Total expenditure 15 69 166 383 196.0%
Operating profit 5 33 129 297 289.0%
Depreciation 1 6 13 22 178.0%
Interest 0 1 0 0  
Profit before tax 4 28 120 297 313.0%
Tax 0 0 2 8  
Profit after tax 4 28 116 284 306.0%
Key Ratios          
Operating profit margin 25.4% 32.5% 43.6% 43.6%  
Net profit margin 21.4% 27.7% 39.4% 41.8%  
Fully Diluted EPS (Rs) 0.2 1.4 5.9 14.4  
CEPS (Rs) 0.8 5.4 20.6 46.7  

Its products business has contributed 49% of its FY00 sales. Growing product revenues have further increased VisualSoft’s operating margins in 1QFY01 to 52% from 43.6% in FY00. The company’s product VisualSoft Web Project (WAP and ASP enabled product) and VisualSoft JBPro have established themselves as leaders in their segments. What’s noteworthy about Visualsoft is its flexibility to quickly adapt to new technologies. For instance, it did not have Java capability until a few months back. Now, the company has joined the top ten list of the Java Developer’s Journal.

Neither does VisualSoft lack on the marketing front also. It has tied up with 12 global software marketing and distribution companies to market its products. However such marketing tie-ups entail heavy costs. The company gets only 50% of the price of its products and the balance 50% goes to its channel partner.

Although the company has many successful products, it does not actually develop software for new applications. It concentrates more on complementing existing technologies. For example its latest product VisualSoft JBPro (Java product), builds add-ons around the language so that developers can use this more effectively. The company’s business model is to adapt a technology for a particular use. So instead of developing new products, the company’s R&D effort is directed towards developing new versions of existing products.

At the current market price of Rs 1,712 VisualSoft is trading at a P/E of 119 times its FY00 earnings and 60 times its FY01 projected earnings. During the year, the company has declared a bonus issue in the ratio 2:1. In the recent past the company’s valuations has been affected adversely due to concerns about its revenues, as it had to pay Rs 25 m as a final settlement to Danlaw Inc. USA for the services rendered by the later. Also Visualsoft does not own many IPRs since its products are not original innovations but improvisations of existing technologies. Nevertheless going by the demand potential and the current strength of the company, it should not have any problem growing at 100% over the next two years.

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