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Software: Growth drivers - Views on News from Equitymaster
 
 
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  • Sep 28, 2000

    Software: Growth drivers

    The software services sector in India is riding on a growth path. In the past 10 years the industry has grown from US $ 100 m to US $ 6 bn now. Indian software companies have been able to establish themselves in the global market primarily on the basis of their consistent quality.

    In order to boost the booming software industry the government has extended several tax benefits. To begin with Union Government has granted tax concessions to a host of IT enabled services under section 10A and 10B of the Income Tax Act. These sections provide for deduction of profits and gains derived by an undertaking set up in software technology parks (STPs), export processing zones (EPZs), export oriented units, free trade zones and special economic zones. The deduction is available for a period of 10 consecutive assessment years in a graded manner to an undertaking set up on or before March 31, 2000.

    The services exempted include back-office operations, call centres, content development, animation, data processing, engineering & design, geographic information system services (GIS), human resource services, insurance claim processing, legal database, medical transcription, pay roll, remote maintenance, revenue accounting, support centres and website services. This exemption would surely benefit some of the software companies like Digital Equipment, which derives its major part of revenues from IT, enabled services and Geometric Software, which is focussing on GIS.

    The government is also planning to extend tax holiday to onsite service revenues of software companies in STPs and EPZs. In FY00 onsite service contributed about 58% (Rs 60 bn) of the total revenues of software. Concessions to onsite revenues is likely to benefit companies like HCL Technologies, PSI Data and Polaris Software, as onsite software development constitutes major portion of their total business.

    Comparative Valuations
    Particulars Infosys HCL
    Tech
    Digital PSI
    Data
    Market Price (Rs) 7,380 1,137 482 605
    P/E (x) 92 77 57 28
    Market Cap/Sales (x) 30 17 14 6
    Number of shares (m) 66 140 33 8

     

     

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