• SEPTEMBER 13, 2000

Software: Take your pick

The Indian software industry has a very promising future. It has the potential to alter the future course of the Indian economy. Software companies will have to move up the value chain fast and offer niche products and services.

Software industry in India is growing rapidly. The potential growth areas include e-commerce, mobile computing, re-engineering and system integration. Software companies need to move up the value chain fast by providing end to end consultancy service and creating unique software products. Customised software development will continue to be the mainstay of the industry.

There are very few companies in India specialising in software products, as product development requires huge capital and there is always a risk of failure. Although margins in this area are high, it also entails large marketing expenses. Also branding is a key differentiater for moving ahead in the software products market. A software company is no longer evaluated only on cost platform; it is also being evaluated on a value platform.

In a bid to become MNCs, Indian software companies need to beef up existing markets, penetrate under developed markets and explore new markets. Currently software companies derive more that 80% of revenues from the US. All those players who have attained critical mass need to expand their geographical contribution markets.

Indian software companies derive their high valuations from their expected future performance and better business prospects. Although their current valuations seem t be on the higher side, they may be justified considering the opportunities available in the software industry, in emerging areas like e-commerce and mobile commerce. Comparative valuations indicate that currently NIIT and PSI Data are the cheapest available stocks among this group. These companies will be re-rated once they show good growth in financial performance and move up the value chain.

Comparative Valuations
ParticularsInfosysSatyam HCL
Market Price8,8476161,2513,271561
Market Cap/Sales3616193217

ParticularsVisualSoftPSI DataHughes
Market Price1,8067431,4401,7413,079
Market Cap/Sales52745820

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407