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Digital – Winds of change - Views on News from Equitymaster
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  • Sep 21, 2000

    Digital – Winds of change

    Digital Equipment India Ltd. (DEIL), is a unique case of successfully changing business models. From being a subsidiary of Digital Equipment Corporation, which got sold to Compaq, now DEIL has re-christened itself by becoming a software services company. It is perhaps the only Compaq group company to be fully focussed on delivering software solutions.

    DEIL has not merely changed itself to a software company. The company has also set for itself a stiff target of achieving revenues of Rs 5 bn by the year 2003 (FY00 – Rs 816 m). Although the target seems bit ambitious the company will be able to achieve it if things turn out as per its plans. Following are some of the major initiatives undertaken by DEIL to achieve its targets and grow its future business

    Broadening customer base and reach: DEIL has planned to broaden its customer base by targeting business from both external parties and Compaq (to which is a preferred supplier for its software services). Currently, DEIL derives more than 80% of revenues from Compaq. The company is striving to reduce this ratio to 50% by 2003. It will also leverage on Compaq's huge clientele worldwide to develop its own network of clients. The growth of the company will depend on how fast the company develops its clientele network.

    Marketing efforts: DEIL has planned to step up its marketing efforts by establishing overseas offices in Europe Latin America, Japan Australia and US. The company is selling its services on the platform of value proposition and not leveraging on the Compaq brand name. The exercise also includes appointing channel partners in these offices, which will have dedicated sales and marketing teams to facilitate high quality customer service.

    Formation of a new team: In April 1999, DEIL has reconstituted its Board of Directors wherein the company has inducted a new management team that is fully focused on developing software business. As a step towards that the company has included Dan Thatte on its board who is a senior sales consultant in US. This would give a lot of comfort to the non-Compaq customers. To bring in further transparency the company also inducted on board ABB VP (Infosystems) Mr. Fredrik Bystrand. This is a very positive move and will enable the company to drive its future growth.

    Service strategy: DEIL offers a comprehensive portfolio of software services with a focus on e-business solutions backed by its strong expertise in Internet technologies. The company also has skills in methodologies for life cycle services such as Migration, Technical and Application Services. Following are some of the services offered by the company:

    • Application Integration
    • E-Commerce - Web Storefront (Microsoft), Procurement (Oracle), Security (Entrust)
    • CRM - Call Centres, Siebel
    • Messaging & Collaboration - Lotus, Exchange
    • Enterprise Application - SAP
    • Business Intelligence - Oracle, SQL-Server
    • Legacy Systems - Maintenance and Support.
    • Communication industry solution (Intelligent networks, business support system)

    The company is focusing on Internet based solutions through its entire service offerings and has a presence in providing technology-intensive back-office functions for both telephone and Web based call centres. Here, it supports Compaq’s installations for a number of large corporates including GE in the US and plans to extend this to India. The new strategy includes focus on web enabling of legacy functions, CRM and Security. It is also building Knowledge Management Systems, on the lines of Compaq’s Active Answers service. Active Answers is an extension of call centres; reactive, but offering self-help advice for customers.

    The company has taken various initiatives to improve its business in future. However the development of the company will greatly depend on how fast is it implementing these measures, whether it will be able to broadbase its clientele at a faster rate, and beat other companies in the same field in terms of both sales and profits growth etc.

    The stock is available at a P/E of 43 times its FY01 projected earnings at current market price of Rs 467. The company’s future valuations will depend on its ability to successfully generate the revenues outside the Compaq business and its marketing ability. Any success in these attempts could trigger a re-rating in the stock valuations.



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