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Mascon: Will it deliver? - Views on News from Equitymaster
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  • Nov 17, 2000

    Mascon: Will it deliver?

    MASCON is the acronym for MAnagement and Systems CONsultants Ė a company that claims to have capability to provide end-to-end solutions for e-business i.e. skill sets that range from consulting to development and support for e-business solutions. Not many talk about getting into consulting that is where Mascon is different from others. But the catch is that the strategy consulting is outsourced.

    Masconís focus is on telecom, a vertical that is catching everybodyís attention. This interest is primarily due to the fact that the area is very promising in terms of growth and has high entry barriers in terms of required skill set. It plans to develop application servers for soft switches (software based switches that will connect all different kinds of net works like WAP, Internet, PSTN).

    It also has an ERP product, AIMS that is basically for manufacturing organizations. The CEO, Mr. Nandu Thondavadi, is a clinical professor of operations management at Kelloggs. And with his expertise perhaps, the ERP was developed. The ERP has a web-enabled module that allows the customers to directly order over the Internet. But the company does not have a USP (unique selling proposition) in this segment.

    Another very interesting area that they operate in is data mining and data warehousing. Mascon is acting as an implementation consultant for products like BroadVision (a product that allows the user to set criteria for searching) and TIBCO (a product that captures the knowledge from the data and implements the actions based on the predefined rules). This is by far the best source of growth for the company because when B2C catches up, there is going to be a great demand of skill sets like these. Walmart is already using this product and the implementation is handled by Mascon.

    But the area in which the company has a lot of experience is software development. It is working on a clearing system for Master Card, software that will handle about 24 million transactions per day. A company that can implement a solution of this kind has certainly a good technical know how. If it can do this successfully then it can become a force to recon with.

      9 Month ending
    September 99
    9 Month ending
    September 00
    Revenue 302 2340 674.9%
    Staff Cost as % of Revenue 53.8% 38.0% -29.4%
    Consultancy Charges as a % of Renvenue 4.3% 25.9% 508.0%
    Operating Margin 17.2% 22.1% 28.5%
    Net profit margin 17.2% 20.5% 19.5%

    But, let us look at some numbers. The companyís revenues jumped year on year by nearly 700% for the nine months ended September 2000. Nothing amazing, many emerging small IT companies have this kind of a growth. However, Masconís operating figures at 21% are way below the industry benchmark of around 30%. But the biggest issue for the companies like this is internal management and delivery when they begin to grow.

    At the current market price of Rs 420, Mascon is trading at a P/E of 18 times its nine months annualized earnings. What is hurting the companyís operating profit growth is the outsourcing of consultancy charges. If the company is planning deliver end-to-end solutions it canít afford to out source consultancy, which can depress its future profits margins.



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