3QFY01 for PSI Data Systems was not as dazzling as for the rest of it peers in the industry. Its topline, compared to 2QFY01, grew by just 1% and the bottomline got depressed due to increase in human resource costs. This is certainly a reason for concern. But one of the reasons for the flat topline could be human resource crunch, something the whole industry is going to face in a big way.
The reason why the future looks bright for PSI is its focus. Most of its business interests are in the fastest growing areas. One of these is embedded software solutions. With the popularity of PDAs (personal digital assistants), the operating system for PDAís (embedded software solutions) is likely to grow exponentially. The advantage for PSI is also that there are hardly any suppliers in this market. The other known players in this area are Wipro and HCL Technologies. This is primarily due to the fact the embedded software segment requires high skill sets, which are different. This serves as an entry barrier.
Internet security is another growing area in which the company has shown interest. PSI has developed software, Security Advisor, a product for network security. This acts as an alarm and informs the network administrators of break inís.
Year (Rs m)
1998 - 99
1999 - 00
2000 - 01
2001 - 02
2002 - 03
Source : NASSCOM
Considering security costs to be about 5% of all transactions (B2B and B2C) for an organisation, the market is large. Again there are very few Internet security providers in the country.
PSI also offers solutions in areas of banking and finance. It has an impressive list of clients that include Price Waterhouse Coopers, Deutsche Bank, ANZ Grindlays, ICICI, HDFC Bank. It is also into providing e-commerce solutions that is the major revenue stream for the Indian software industry.
Considering that most of the software companies derive about 70% of their revenues from the US, the PSI revenue model is surprisingly fresh. It derives only 30% of its revenues from the US. It has 43% of revenues from Europe and 27% from India. This is due to the business it gets from Groupe Bull, which holds 50.4% equity in the company. One of the biggest plus points of PSI is that it has one of the lowest employee turnover rates in the country at around 14%.
We expect the next quarter results for PSI to be better, considering that additional manpower is likely to add to its turnover. Hence, at a P/e multiple of 15x, PSIís valuation seems low compared to its peers in the industry.
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