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PSI Data: New ventures to drive growth - Views on News from Equitymaster
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  • Oct 3, 2000

    PSI Data: New ventures to drive growth

    PSI Data Systems, a 51% subsidiary of Groupe Bull of France offers services in the areas of banking & finance, Internet/e-commerce and system integration. Bull is an established company in Europe, employing more than 18,000 people in more than 65 countries.
    Technology Practice % of sales
    Telecom 5.0%
    Microsoft Technologies 5.0%
    Oracle/Data Warehousing 9.0%
    Internet/Java 55.0%
    System Integration/Banking Solutions 17.0%
    Network Management 3.0%
    Others 6.0%
    PSI derives a large portion of its revenues from the higher end of technology domains. In order to gain new contracts on offshore basis, the technology domain capabilities have become very important and PSI has been able to reach upto that level, as can be seen from the following table:

    PSI has one of the most diversified geographical revenue break up. It derives 43% of revenues from Europe followed by 30% from US and 27% from India. The company is also looking at the financial services and banking sector in the Asian markets particularly in Thailand, Malaysia and Middle East where the banking sector is still evolving. As part of its immediate growth plan, PSI is planning to invest around $0.5 m in its Japanese subsidiary, which is likely to be incorporated in the beginning of the next year.

    PSI has developed a well-diversified client base despite being a Groupe Bull company. During the quarter ended June 2000, it added some new clients like Norther Rock (contract for $3 m from US), e-people ($1.25 m) and RAF ($3m). PSI has also signed a contract with MarketJazz, for setting up a B2B exchange, pre-dominantly in the automotive industry and machinery manufacturing. Although revenues from the parent still account for 23% of total business, PSI should be able to establish a diversified customer base in the coming years.

    Apart from banking/finance products, the company has added a new line of business, embedded software services in the current year. The division would primarily focus on process instrumentation side of business and automation. The embedded software division is expected to generate 5-7% of PSIís revenues in the current year. With the demand for embedded software picking up especially in Europe the company will be able to cash in on its skills in the segment. Revenues from this division are anticipated to double within two years.

    The company is also planning to create a new division (PSI Consulting), which will offer branded consultancy services in the banking, finance and technology areas. PSI will be able to maintain its trail blazed performance in the next few years, if it is able to successfully implement these plans.
    Year ended December FY98 FY99 FY00 CAGR (3 yrs)
    Gross sales 312 403 598 38.5%
    Operating profit 22 69 118 132.5%
    Depreciation 8 11 13 33.2%
    Interest 7 8 5 -8.8%
    Profit before tax 19 60 112 144.8%
    Profit after tax 17 43 104 145.9%
    Number of shares (m) 35.9 7.6 7.6  

    Key Ratios
    Particulars FY98 FY99 FY00
    RONW 23.8% 36.8% 52.4%
    ROA 10.2% 16.1% 28.1%
    ROIC 25.7% 33.0% 55.2%
    Revenue per employee (Rs m) 1.08 1.25 1.37
    Profit per employee (Rs m) 0.06 0.13 0.24

    At the current market price of Rs 575, PSI Data gets a P/E of 26 times its first half 2001 annualized earnings on a market cap to sales ratio of 6 times. The valuations of the company are comparatively low given its strong parentage, technology domain, financial strength and well diversified geographical & clientele base.



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