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SSI – Global solutions

Sep 19, 2000

SSI Ltd., one of India’s fastest growing companies providing software education and software development & consulting has announced the acquisition of AlbionOrion company, USA for Rs 2.9 bn. SSI proposes to use combination of cash (US$ 20 m) and stock (US$ 43.7 m) to pay for the acquisition. The transaction will lead to an equity dilution of about 5%. AlbionOrion is a company with strong domain expertise in telecom, insurance, health and human services. It provides high end IT solutions in Internet technologies, SCM (Supply Chain Management), CRM (Customer Relationship Management) and ERP systems. The company has a strong client base of Fortune 1,000 companies which includes BellSouth, 3M, American Express, Atlantic Mutual and DaimlerChrysler.

AlbionOrion’s sales revenues of $27 m for FY00 are expected to grow at about 30% in FY01. The company gets operating margins in the range of 35-40% and expects to grow its margin further in the current year. It has a healthy order pipeline of US$ 27 m as on date. The billing rates of the company are also comparatively on the higher side since it operates on a high end of value chain. Its onsite average billing rate of $115 per man-hour is expected to increase to $175 per hour, which reflects its strong position in the value chain. The acquisition is expected to significantly improve SSI’s revenue mix and add an impressive list of clients and set of core competencies to SSI.

SSI has a strong presence in the education business through its division SSI Education, which accounts for around 75% of its total revenues. It offers courses in high-end technologies including Java, e-commerce and client server technologies. While SSI Technologies, the software solution division focuses on e-commerce and web enabling of software products based on state of the art architecture. The income from this division have grown to Rs 474.2 m in FY00 (Rs 26 m in FY99) contributing 24% to total business. The acquisition of AlbionOrion will complement SSI Technologies business model with strong domain skills in telecom, banking, healthcare and insurance. It will also provide a platform for the company to move up the value chain by enhancing delivery capabilities. The acquisition is expected to add revenues of more than Rs 1.6 bn to its current revenues of Rs 2 bn.

Financial Performance
(Rs m)FY99FY00Change
Sales8491,975132.5%
Other Income27168530.4%
Operating Profit (EBDIT)317711124.4%
Interest 5635-37.6%
Depreciation61149143.7%
Profit before Tax226695207.3%
Tax46126176.6%
Profit after Tax181569215.1%
No. of Shares (m)11.912.8 
Key Ratios   
Operating profit margin 37.3%36.0% 
Net profit margin 21.3%28.8% 
Tax / PBT20.2%18.1% 
Diluted Earnings per share14.144.5 

At the current market price of Rs 2,623 SSI is available at a P/E multiple of 59 times its FY00 earnings. During the year ended June 2000, the company has successfully acquired companies lie Indigo International Inc., Agenda Netmarketing Pvt. Ltd. and Inndsoft Systekh Ltd. It has an established track record of making acquisitions that create significant value for the shareholders. Efficient deployment of cash (as on June 2000 cash balance of Rs 3.5 bn) will enable the company to improve its return on capital employed in time to come. This will also improve its current valuations.

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