At the same time, the company is relatively insulated from the intense competition in the global arena thanks to the marketing arrangement with its US-parent. Even though Hughes Network (the parent) accounts for over 70 per cent of its sales, the company's clientele includes global majors like Bell Atlantic, Harris Corporation, NEC, CAS and Tektronix. Investment in the IPO can be considered for both short as well as long-term gains. Market sources say Hughes Software may list at around Rs 1000-1100.

Hughes Software is engaged in the development of communications software and is one of India's leading companies in this filed. It offers both customised software development services and software products. Over the past five years, Hughes Software has been growing at a CAGR in revenue and net profit of 51 per cent and 65 per cent, respectively. While this may be considered less than many of its peers in the industry, the reason for this is that until a two years ago, Hughes Software was solely dependent on its parent for its revenues. However, the company has started reducing its dependence on its parent in order to diversify its client base. In fiscal 1999, for instance, revenues from sale to the parent declined to 74 per cent from 82 per cent in the previous fiscal. This is expected to come down further in the years to come, which augurs well for Hughes Software's margins.

Another plus for the company is the increased thrust on products, which is an offshoot of its high level of domain expertise in communications software services. Income from sale of products (a high margin business) is expected to rise sharply to 18.2 per cent in the current fiscal from 10 per cent in 1998-99. Consequently, the contribution of services to total sales is likely to come down to 80 per cent from over 88 per cent in the previous fiscal. At present, Hughes sells products like ProtoQuick, MutliQuick, IntelliQuick and SwiftBill, which have found acceptability worldwide. These products cater to areas like access network, intelligent networking, billing and customer care as well as switching infrastructure. Interestingly, the sale of products to the parent comprises only 1 per cent of the total product sales.

The communications software industry is a high growth area, both in India as well as internationally. Earlier, the methods and the technologies used for voice and data communications were independent of each other. But thanks to Internet and related services like e-commerce, there is a great demand for combined voice, data and video communication services. This convergence is what has created a tremendous need for communications software products and services.

The worldwide communication software services market was around $ 15.5 billion in 1997 and this is estimated to grow at a CAGR of 10-15 per cent. There are two main segments - communication infrastructure software (CIS) and communication application software (CAS). Hughes has a presence in both these fields. It specialises in switching and access network in CIS and intelligent networking and network management in CAS. As much as 98 per cent of Hughes Software's revenue comes from exports, with the US contributing the lion's share.

Another advantage for Hughes Software is the increased outsourcing by most companies in the communications industry. Thanks to the shortage of manpower and escalating costs, these companies are now increasingly relying on third party software service and product companies.

However, Hughes Software has one major disadvantage. It offers services on a fixed price basis rather than on a time and material basis and, hence, bears the risk of cost overruns, completions delays and wage inflation. This means that a failure to accurately estimate the resources and time required for a project can adversely affect the operations and financial condition of the company. Besides, the dependence on one client (from which it also sources most of its capital equipment) will continue to affect discounting. Although Hughes plans to bring down the level of this dependence, the relationship is imperative for Hughes to increase its exposure in the international market, particularly as most of its competitors are US companies.