SSI (formerly called Software Solutions) is engaged in the software training and education segment (which is dominated by NIIT and Aptech who control 70 per cent of the market). The company, hitherto focused on the south, is now tryingto expand geographically to other parts of the country. Its inroads into metros like Delhi and Mumbai has met with some success. However, it is nowhere near competing with either of the two industry leaders so far as the high volume-low end training is concerned. Although SSI has only 11 per cent share of the software education market, it is an important player as it focuses mainly on high-end training, where the margins are high.

Generally, software education has a low entry barrier because setting up a training centre does not require huge investments. This would explain the mushrooming of the such centres in every nook and corner of a city or small town. At the higher-end, entry barriers are created because of international affiliations and the need to build a brand image. NIIT is already a household name so far as the low-end training is concerned. And, this brand value has helped it gain an easy entry into the high-end training segment as well. SSI will have to build up its brand image to counter theincreased competition from both NIIT and Aptech.

Like its rivals, NIIT and Aptech, SSI has started increasing its exposure to software development and, correspondingly, bringing down its exposure to education and training as a percentage of total income. Over the last three years, software development earnings as a percentage of total income have gone up from 5.1 per cent to 7.4 per cent, while that of training has come down from 94 per cent to 82.4 per cent. This shift is understandable because of the seasonal nature of revenues in software education and training -- 90 per cent of the revenues come from individual training and enrollment peaks during summer vacations.

The biggest challenge (and key to profits) is to reduce idle time for tutors and computers, which is around 25-30 per cent. Focusing on software development will not only improve margins, but also help bring down the seasonal nature of revenues.

However, entry into the software development segment entails a lot of capital expenditure andis a high-risk, high-gain proposition. In the short-term, the going may be difficult as returns on the investments are minimal. The future will depend on the successful launch of new products and services. So far as resources go, SSI is comfortably placed after its recent preferential issue of shares. The proceeds of Rs 56 crore will be used to open centres in India and abroad. However, considering SSI's aggressive marketing and future plans, its cash-flow could be strained.

For the nine-months ended March 1998, SSI has earned a net profit for the nine months stood at Rs 12.26 crore compared with a full-year net profit of Rs 10 crore in 1997-98. On an annualiased basis, the earning per share works out to Rs 14, which discounts the current market price by a multiple of 31 (against NIIT's 59.7 and Aptech's 28.8). Marketmen expect SSI to grow at a much faster rate than Aptech, which has been slow in getting into the high-margin business. NIIT, however, continues to be the market favourite because of itsstrong brand image in both the low and high-end segment.

-- Nandita Datta