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Visualsoft: Magic mix

Dec 21, 2000

Visualsoft has the distinction of being one of the most successful software products based companies. In 1HFY01 51% of the revenues were from products and the remaining 49% from services. The products comprise of components, frame works and applications. In the services area, Visualsoft offers ASP (application service provider) services for its products. What makes the mix magical is the fact that the domains in which the company offers its products have tremendous growth potential. E-business is currently the hottest area for the software community. 89% of Visualsoft’s project revenues are from Internet technologies. Having implemented ERP, most of the organisations are now implementing Datamining solutions. Business intelligence, with an estimated potential of Rs 6,600 bn by FY03, also provides an opportunity for Visualsoft. It’s product in this area FelxiReports and VisualSales could be one of the major revenue earners in coming years.

The biggest problem that organisations will face, and are facing to an extent, is security. The gamut of solutions for security includes products for anti–virus, firewalls, encryption, network intrusion and detection, network/ vulnerability assessment and security management and authorisation tools. Visualsoft has developed products for this domain, which again could be big business.

The company has a very strong track record with a revenues growing at a CAGR of above 100% for the last three years. However, the results for 2QFY01 did not show significant improvement in earnings due to delay in launch of a few key products, which Visualsoft was banking on heavily.

  3QFY99 4QFY99 1QFY00 2QFY00 3QFY00 4QFY00 1QFY01 2QFY01
Net sales Rs m 83.5 108.3 127.6 150.6 179.6 222 266.7 298.5
Growth Q-o-Q   29.7% 17.8% 18.0% 19.3% 23.6% 20.1% 11.9%
OPM 44.3% 47.2% 46.8% 46.5% 46.3% 45.3% 42.6% 54.2%
NPM 38.6% 41.4% 42.6% 42.2% 41.9% 40.8% 38.7% 50.7%

Recently, the company entered into two major R&D outsourcing contracts with US-based multinationals. Though the names and the values of the orders have not been disclosed under Non Disclosure Agreements (NDAs), the company claimed that one of the orders was with a reputed consumer electronics company which would fetch continuous streams of revenues. The projects would last for a period of about two and a half years. The company is also set to enter into two more R&D contracts in the next 40 days, of which one project would be in the unified communications space. It would be interesting to know what Visualsoft has to offer in the communications domain. These four projects are estimated to increase billing revenues by over Rs 604 m.

It has a facility where it can house around 1,250 people. Currently, the strength is around 450 and company plans 250 recruitments in the near future. Also, Visualsoft plans to open offshore business development and support centers in New Jersey, Silicon Valley and London with a capital expenditure of around Rs 300 m.

Visualsoft is trading at Rs 784 at a P/E multiple of 27 times the annualised 1HFY01 earnings. The valuation seems to be quite low considering the product profile and its operating margins.

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