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Nandita Datta
Does a compelling price earning multiple of 34 (for an infotech stock) and a triple digit growth rate in the last three years, warrant an investment in Information Technologies of the Delhi-based Group Usha. Yes, if one looks at the growth potential of the company. No, if one considers the large equity base. On the bourses, the stock has recovered smartly to quote near its cum bonus level of Rs 270-290. In fact, the scrip is currently trading at a new ex-bonus high of Rs 253 on the Mumbai Stock Exchange. Although investment at current levels is avoidable, entry at declines could be considered with a long-term perspective. However, it must be borne in mind, that low earnings as a result of the large equity capital and the diverse business interest of the promoters will affect the company's discounting. Those already invested, could consider booking profits once the stock crosses the Rs 300-level.
Information Technologies has a core competency in offshore software services (mainly in the client servertechnology business). Around 75 per cent of its revenue comes from this business, while 25 per cent accrues from the on-site placements (i.e., body-shopping). According to analysts tracking the sector, this is still on the higher side. Although product development also forms part of the company's business profile, it contributes a minuscule portion of the total revenue at present. Information Technologies is now trying to move to high growth areas like mobile computing, internet technologies like e-commerce and and multimedia.
Says managing director D Kar, ``Currently, we are at the lower-end of the software sector life-cycle, but hope to grow in a big way thanks to our focus in these new areas.'' With palm-tops expected to become the order of the day in the near future, Kar says the company plans to get into mobile computing in a major way. ``Our engineers are getting acquainted with three platforms - Microsofts' Windows C, Psion's Epoch as well as that offered by US Robotics; depending on the customerpreference we will be in a position to deliver,'' says Kar, adding that the sector will see an explosive growth in the years to come. Business inquiries have already started pouring in.
In web technologies, the company plans to have a foothold in both the lower as well as the high-end segments. ``We are doing page designs as well as the very lucrative e-commerce implementations,'' says Kar. The company already has a portal site (myusha.com) which is intended to be a one-stop shopping mall shortly. Information Technologies has successfully implemented a few e-commerce projects in the UK and Canada. In multimedia, the company plans to focus on education as well as high-end training. It already has 8 centres under its Institute for Information Technology Management, which offer a mix of standard, advanced and customised courses.
Over the next five years, the company has lined up an expansion plan of Rs 500 crore which includes setting up ventures abroad, opening of software development and educationcentres. The capex will be financed either through borrowings or preferably the equity route. That, in itself, is a cause of concern as the company already has a huge equity of over Rs 69 crore. To top it, the reserves of the company (excluding the human resource value and brand value) stands at Rs 94 crore. However, Kar justifies the inclusion of these intangible reserves as a common practice in software firms wordwide.
However, analysts remain sceptical as they feel these values have a high degree of subjectivity. According to Kar, the company is likely to maintain the high growth rates, witnessed in the past, over the next three to four years. In the first-quarter of 1999-2000, Information Technologies has posted a 109 per cent growth in profit to Rs 12.52 crore as against Rs 6 crore in the same quarter last year. Sales have jumped from Rs 22.81 crore to 45.34 crore, an increase of 99 per cent. Kar says the company should be able to double last year's figures in the current year. ``We are growing at avery fast pace, so a 100 per cent growth rate is definitely within our reach,'' adds Kar. Apart from the usual marketing network, Information Technologies has now devised an internet-specific marketing strategy, which is meant for marketing through the net. Says Kar, ``We've had a good response so far and this will help us build our brand image.''
According to Kar, the company has been getting many repeat orders and that, in itself, is a major thing. ``Our client list is not long, but it is very deep,'' he says, adding that names like Audi AG, Fuji, Samsung, Xerox and Price Waterhouse figure in the company's client list. He says the company is now striving towards a SEI CMM Level 4 certification. On employee attrition, Kar says his company is below the industry average of 25-30 per cent. ``For the last 1-2 years, we have been able to maintain the attrition rate at less than 20 per cent and the reason is that we have given employees an exposure to new technologies,'' says Kar. Adding new centres around theworld through representative offices is how the company plans to grow. ``We have found the equity partner model effective and plan to continue with this,'' says Kar. The return to the company is either through revenue-sharing pact or transfer-pricing.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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