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Silverline: Secure move

Dec 20, 2001

Silverline has partnered with Diversinet to implement its suite of PKI (Public Key Infrastructure) based wireless security products. The move to enter into the security domain is a smart one. This is because a secure environment is one of the key enablers for e-commerce and m-commerce transactions. According to the agreement, Silverline will be the preferred professional services provider (implementer) and development partner for Diversinetís products. Silverline will also offer these solutions to its own clients. Therefore, this move will open an additional channel for the company to access prospective clients. It can hope to offer its services to some of Diversinetís clients in the future. But in the immediate future the company gets an additional revenue stream. Increasingly businesses and consumers alike are adapting to wireless mode of Internet accesses. Access to personal information like the balance in a bank account on mobile phones is a familiar service that banks offer. As wireless transactions become more commonplace, security will become a significant issue. Thus, corporate spending in this area is likely to see an increase. Silverline can hope for a certain amount of visibility from this revenue stream in the near future.

According to technology market research firm, Cahners In-Stat., the number of wireless Internet subscribers worldwide is expected to jump from 170 m in 2000, to more than 1.3 bn by 2004. Over one million internet-enabled mobile devices enter the market each month, and it is estimated that more than 1.5 bn devices will be equipped with wireless capabilities by the end of 2004. This translates to a significant market for security solutions.

Diversinet is one of leading providers of wireless security products. Silverline already has solutions for the wired networks. The partnership will enable Silverline to offer solutions for both the wired and wireless networks. Key markets that Silverline could hope to tap are the banking, financial services and insurance (BFSI) verticals. These companies require transacting high value information. This has to be done in a very secure environment.

Silverline in 2QFY02 had 48% of its revenues from this vertical. The companyís client list in the vertical includes American Express, Bank of America, Chase JP Morgan and Fidelity. Thus, the company could see some pace added to its revenues from this partnership. Interestingly, the security segment has not taken the fancy of Indian software companies. In that sense, the move could give Silverline the first mover advantage.

At the current market price of Rs 67 the stock is trading at a P/E multiple of 14x its FY02 estimated earnings (for Silverline Ltd.). We expect the companyís revenues to decline by 34% in FY02. The company has the advantage of being one of the larger players in the software industry. The stock is trading a discount to many of its peers due to concerns regarding future stability in earnings and the management.

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