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Cranes Software: Conference call extracts - Views on News from Equitymaster

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Cranes Software: Conference call extracts
Sep 6, 2007

We recently had a conference call with the senior management team of Cranes Software to get an overview of the company’s current performance and future prospects. Here are the excerpts of the discussion. Business model: Cranes Software is a specialised software products company, focussed on providing products and solutions to address the needs of scientists and engineers globally. The company's main focus areas are data visualisation and presentation, statistical and analytical software and engineering. Cranes’ core success lies in its unique ‘Acquire-Enhance-Expand’ business model. This model has enabled the company to create a significant intellectual property (IP) driven technology business within the focus area of scientific and engineering software.

Acquisitions are an integral part of Cranes’ business model and their success the basic reason for the company’s strong performance in the past. Its acquisitions include products that have faced problems due to shortage of funds, weak management, and lack of sales and marketing network. These products are usually technologically strong and have brand names. Cranes acquires such products and then uses its R&D capabilities and marketing network to further enhance and sell them.

Manpower: The business model of Cranes does not require a big ramp up in manpower. At the end of FY07, the company had 715 people of which 350 were statisticians and mathematicians and 80 were PhDs whose primary job is to convert IPs into saleable products. As such the company is not that affected with the current supply crunch and faces single digit attrition.

Competition: Cranes faces competition from two companies - Fair Isaac (a US company with an existence of over 70 years) and SAS (US). Both these companies have relatively very lower presence in India and this throws up huge opportunity for Cranes to tap.

  Cranes (FY07) SAS (CY06) Fair Isaac (Sep-06)
Revenue (US$ m) 65 1,900 825
YoY growth 35.0% 12.0% 3.3%
Operating margins 52.7% NA 18.5%
Net profit margins 30.7% NA 12.5%

Future growth drivers: Cranes expects operating margins to expand only if the volumes increase. The current user base of Cranes Systat products is 3,60,000 across the world and 60,000 for MATLAB product. The business of the company is such that the quantum of data that can be analyzed to provide a meaningful analysis also needs to increase and data storage and retrieval costs has to come down. Only then the products will find more traction.

Geographical breakup of revenues
  Cranes SAS Fair Isaac
Americas 45.0% 45.0% 72.0%
EMEA 20.0% 45.0% 28.0%
Asia Pacific 35.0% 10.0% 0.0%
Geographical breakup of revenues
Cranes is also exposed to the risk of currency appreciation as it derives 80% of its revenues from overseas market. The geographical breakup of revenues of Cranes and its competitors is as follows.

Revenue mix: Cranes currently generates 80% of its revenues from proprietary products, 17% from product alliances and remaining 3% from training. In proprietary products, selling more licenses and expanding user base is the key strategy. While in case of product alliances, the company acts as a representative of the overseas principal and revenues are derived from trading activity. As the revenues base increase, the share of proprietary products will increase or atleast remain stable. The company will focus on expanding its proprietary products base.

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