Annual performance review

f one measures annual performance by year on year growth, India's IT sector has clearly tanked. From mega growth rates of 100 per cent plus, companies are down to reporting an average 20-30 per cent rise in profit. If one measures performance against the odds that the industry braved in fiscal 2001-2002, a depressed US market, lowered technology spends, long decision cycles, falling billing rates conditions-exacerbated by 9/11-India's IT industry performance is a remarkably gritty story of blood, tears and survival. Frontline majors such as Infosys and Wipro stuck to their projected figures and posted 30 per cent increase in profit. Some failed to ramp up but most held steady and reported modest profits. Others like Infotech Enterprises and DigitalGlobal appear unfazed by the downturn and reported record numbers.

The drivers of this year's growth were however the orders bagged in the first two quarters in the pre 9/11 scenario. This can be deduced from the fact that sequential growth in revenues and profits have significantly declined.

Another theme in the profitability story is an accelerated pace of client acquisition. Companies that added 25 plus clients a quarter reported gains. This year companies will hold on to the same strategy in a multi-vendor market where pricing pressure is bound to persist. The US economy as, reported in our last edition of Tattler, is showing signs of stability, but upward recovery is still a few quarters away. This month Ericsson, Lucent and Sun Microsystems announced massive job cuts. If 2001 was tough, the first few quarters of 2002 will reflect the same trend. Realising this Satyam and Infosys have scaled down growth projections by 10 per cent from 30 per cent last year to 20 per cent in the current fiscal. Others like Wipro have refused to make forecasts in a volatile economy where unpredictability is the only known factor. The conclusion (banal but true) the situation is not getting any better. But for the Indian IT industry the difference this time, is that it's prepared and seasoned in weathering the worst. If the US economy picks up, companies are poised for growth, if it fails to do so, Indian companies will still win for having risk strategies in place and on account of the increased interest in offshore outsourcing. AssureConsulting.com brings you the news. Read on to know how companies fared.

Pace Setter: Infotech Enterprises (25 April, 2002)

For Hyderabad-based Infotech Enterprises, 2001 was the year of the big leap. The company cocked a snook at the downturn that tanked fortunes of hundreds of IT companies and grew from strength to strength. This fiscal the company also crossed the threshold revenue figure of Rs 100 crore and is now speeding ahead on the growth highway.

Achievement One: The company pushed net profit from Rs 17.23 crore in the previous year to Rs 25.63 crore, an increase of 49 per cent. Achievement Two: In the fourth quarter when frontline companies were hard pressed to deliver modest performances, the company posted a 52 per cent growth in revenue and an 86 per cent increase in profit. Fourth quarter income and profit stood at Rs 27.75 crore and Rs 7.82 crore respectively as against Rs 18.27 crore and Rs 4.2 crore in the previous year. Achievement Three: The company pulled all stops to strengthen its position in Europe by acquiring Advanced Graphics Software, a German company with engineering services skills and MapCentric, a UK based IT company, through InfoTech Europe.

For the current year, the company's focus is on evolving quality systems and processes that enable delivery efficiency and contribute to customer value enhancement. Qualitative lessons for IT…. Dig feet in a growing niche area and ramp up the value chain.

Knock out innings: Digital GlobalSoft (25 April, 2002)

In a subdued market, Digital GlobalSoft shocked industry observer by a knock out innings of 71 per cent growth in net profit. The company's performance parameters firmly placed it in the top quartile within the sector. Net profit climbed to Rs 92.7 crore as compared to Rs 54.32 crore in the previous year. For the year to March revenues increased by 75 per cent to Rs 345.2 crore as compared to Rs 196.9 crore in the previous year. Net profit for the quarter stood at Rs 26.6 crore.

Although non-Compaq business revenues were higher by 138 per cent at Rs 50.6 crore, they contributed only 15 per cent to total revenues. Revenues from Compaq during the year increased by 73 per cent to Rs 281.1 crore and contributed to 85 per cent of the operating revenues.

Digital Global that delivered sequential growth in revenue and profit for nine quarters successfully is not sitting on its laurels. The company has set an ambitious charter to outperform growth in the sector this fiscal. The key agenda for FY 2003 includes: engagement of increased annuity led revenues with large offshore potential; developing products business; building IT-enabled services business; increased focus on gaining independent business through self-initiated programs and in partnership with parent and offsetting pricing pressures through increased productivity and value-led offerings. Growth in the current year will be volume led as increased competition from India-centric firms is acting as a price cap in global markets.

Getting it right: Mphasis BFL (9 April, 2002)

Mphasis BFL propelled forward in 2001. Unruffled by the slowdown, the group added two software development centres and a call centre in the fiscal year. A sign of growing profitablilty was the staggering increase in employee utilisation rates from 57 per cent in the previous year to 78 per cent in the current year. The company net profit for the year ended 31 March, 2002 soared by 201 per cent to Rs 40.98 crore over last year's net profit of Rs 13.61 crore. Consolidated revenues for the year 2001-02 increased by 14.6 per cent to Rs 313.35 crore from Rs 273.34 crore. Net profit for its March quarter, 2002 increased to Rs 13.26 crore, compared to the net profit of Rs 7.40 crore in the quarter ended 31 March 2001.

In the fourth quarter the group added eleven new clients including two in MsourcE, the Group call center subsidiary. These include two large banks in the Middle East, a large international insurance organisation, a leading management consulting firm in South-East Asia, and a large project for web-enablement from a leading software company. Top ten clients contributed 69 per cent of the revenue.

For the year ahead, the company is optimistic that it will tide growth challenges.

Customer is King: Satyam Computers  (23 April, 2002)

Unchallenged by the downturn, Hyderabad-based software major Satyam Computers continued its accelerated growth spree. Satyam faught off the weak economic scenario in major markets by strengthening client relationships and through its enterprise solutions offerings. The client strength of the company increased from 208 to 263 during the year, of which 60 are Fortune 500 companies. The company made an entry in the Middle East by bagging a client in the oil and gas sector, a critical industry in that region, through Abu Dhabi National Oil Company. Other additions include Al Shaya - a leading retail organization with strong presence in Kuwait and Saudi Arabia. Satyam also bagged two orders orders from Japan's Subros Limited and Suzuki Motor Company and made a foray into the Chinese market by setting a facility.

The healthy pace of client acquisition was reflected in the company's bottomline. Beating market expectations, Satyam Computer Services reported a massive 55 per cent growth in net profit from Rs 316.16 crore in the previous year to Rs 490.13 crore. An extraordinary charge of Rs 40.75 crore pertaining to writing off certain investments in the marketing subsidiaries that were merged with SCSL reduced profit after extraordinary items to Rs 449.37 crore. Total income was pegged at Rs 1,803.09 crore, an impressive 45.21 per cent increase over the total income of Rs 1,241.67 crore in the previous fiscal. While income from software exports amounted to Rs 1,703.07 crore, domestic sales was Rs 28.86 crore. Sectoral break-up of revenues was: Software design and development 63.85 per cent, software maintenance 21.11 per cent, packaged software implementation 6.44 per cent and engineering design services 8.60 per cent.

For the current year, the company has forecast a growth rate of 18 to 20 per cent in dollar terms in the software service business. The company has adopted five key strategies to stay ahead: Focus on five major verticals - Automotive, Banking & Financial Services, Insurance and Healthcare, Manufacturing and Telecom; strengthen offerings in Enterprise Solutions, IT Outsourcing, Network & Systems, Hitech Solutions and Engineering Services; develop strong regional focus in the existing and emerging markets; place high emphasis on business solutions founded on both domain and technology competencies; ensure high level of customer intimacy through proven relationship management processes.

Bang on Dot: Wipro Technologies (18 April, 2002)

India's leading IT major Wipro Technologies Limited stuck to its promise of above average industry growth and posted an impressive 32 per cent increase in net profit. The company added a cool Rs 885 crore in profit to its kitty as against Rs 671.10 crore in the previous year. Consolidated revenue grew by 12 per cent and stood pretty at Rs 3,440.51 crore. For the fourth quarter, the company's revenues fell marginally by six per cent to Rs 940.6 crore. Net margins increased by a modest 7 per cent at Rs 231.2 crore.

In an uphill year, Wipro achieved a remarkable 12 per cent year on year offshore price increase and 15 per cent onsite price increase. The company also strengthened its position in Europe and Japan, with revenue contributions from the two markets increasing 36 per cent and 12 per cent respectively. Share of US revenue also declined by 57 per cent. Following the meltdown in the telecom sector, the company reduced exposure to its largest enterprise customer Nortel Network that contributed 37 per cent revenue and simultaneously made speedy forays into new initiatives such as systems integration, package implementation and strong growth in the financial services to offset the loss suffered on that count. Nortel now accounts for 1 per cent of he revenue. With 107 clients in its kitty, its five largest customers were Transco, Warehousing, Lattice, Nortel and Alcatel.

Facing sustained pricing pressure, Wipro is resetting targets and restructuring strategy. The company refused to provide guidance for the entire year, suggesting that the year ahead would once again be a hard battle for growth. The company has warned of increased pressure on billing rated and its inability to sustain growth on that count. For the first time the company made an official announcement that growth would be volume driven. Earlier Wipro had always emphasised that it would move up the software value chain. The company has identified insurance, asset management with strong emphasis on package implementation, embedded systems business and home networking as its new areas of focus.

Perfect Coordinates: Geometric Software (25 April, 2002)

Unfazed by the downturn, Geometric Software Solutions Limited notched a 34 per cent higher profit than last year. Net profit surged to Rs 12.8 crore from Rs 9.53 crore in the previous year, a whopping 34 per cent increase. Revenues zoomed 49 per cent to touch Rs 70.71 crore as compared to Rs 47.41 crore in the previous year. Operating revenue for the fourth quarter was Rs 18.27 crore for the quarter as against Rs 16.46 crore recorded for the corresponding period last year.

Major sectors that contributed to the company's topline are geometry, information management and collaborative engineering at 65 per cent, 25 per cent and 10 per cent respectively. Another significant highlight of the year was the joint venture with Dassault Systems, a leader in 3D product life cycle management, expected to be a major driver of growth in the current year. The company's alliance with Wipro is also expected to yield high benefits.

Commenting on the results Manu Parpia Managing Director Geometric Software said: "Geometric has shown steady growth in the last year, and more importantly laid the foundation for sustained growth in the year ahead. Ahoy Ahead!

Rough Climb: Infosys Technologies (10 April, 2002)

It was nor an easy year for Infosys - India's largest software services giant. A company markets by posting 100 per cent growth in previous years had to fight lowered technology spends, elongated decision cycles, falling onsite business and severe pressure on billing rates. The company stuck to its guns and aggressively chased volumes. In a depressed market it doubled marketing efforts and continued to add 25 plus clients every quarter. The strategy has paid off. The company delivered on its projections and registered a substantial 37 per cent revenue growth to Rs 2,603.59 crore from Rs.1,900.56 crore in the previous year.

Net profit surged by 28.5 per cent and climbed steadily to Rs 807.96 crore as against Rs 628.81 crore in 200-2002, a solid 28.5 per cent increase.

For the fourth quarter ended 31 March, 2002, the company's net profit stood at Rs 210.32 crore, up 2.08 per cent from its previous quarter. Income for the fourth quarter stood at Rs 680.13 crore, an increase of 2.92 per cent over the previous quarter's Rs 660.81 crore.

Attempt to limit exposure to the US market were not entirely successful. The bulk of revenues (71.2 per cent) came from US clients. This was only marginally lower than the 73.5 per cent last year. Domestic revenue grew by 0.6 per cent to 2 per cent as compared to 1.4 per cent last year and the rest of the world contributed 7.3 per cent as compared to 6.3 per cent. Europe contributed 19.5 per cent (18.8 per cent last year) to the company's topline.

The company, whose projections have become a blueprint for India's software growth, slashed growth rates from the current 30 per cent to 20 per cent. In a volatile uncertain market, Infosys' strategy for the current fiscal, chase volumes, derisk exposure to sectors such as telecom and strengthen presence in Banking and foray into Business Process management to provide end to end initiatives to its clients.

Designing growth: Tata Elxsi (26 April, 2002)

Unstinted customer focus and tight cost management in a tough year aided Tata Elxsi's impressive growth. The company ended the year with a topline growth of 20.77 per cent in net profits. Sales and revenue, however, declined by 5 per cent. The company registered a net profit of Rs 16.74 crore on a sales turnover Rs 129.8 crore for the year 2001-02 as against a net profit of Rs 13.86 crore on a turnover of Rs 136.74 crore in the previous year.

Tata Elxsi, the first company to be certified SEI CMM Level 5 exclusively for 'product design' workflows, will focus on embedded systems based product design services and make sizeable investment in sales and marketing. The company will leverage its competencies in the System Integration & Support services business and launch new initiatives in the Mechanical product design & Digital Content creation services areas.

Changing Course: Polaris Software Labs (22 April, 2002)

Nine months ago, Polaris Software Labs used the slowdown as an opportunity to challenge and realign its business model with current market realities. As part of its derisking strategy, the company upturned its onsite-offshore mix in favour of the latter. Polaris' offshore centric revenues grew by 45 per cent to Rs 177 crore for the year ending 31 March, 2002. Topline growth was impacted by the transition but it helped the company remain steady in a volatile environment. At a marginal 2.6 per cent increase in net profit, for the year ending 31 March 2002, the company's results were nothing to report home about. Polaris posted a net profit of Rs 61.64 crore as against Rs 60.10 crore last year. Total revenue for the year ended 31 March, 2002 increased to Rs 283.93 crore from Rs 269.67 crore in the previous year. Fourth quarter profits decreased by 12 per cent to Rs 16.01 crore as against Rs 18.26 crore in the same period last year.

With the new business model in place, Polaris is bullish about prospects and has forecast 50 per cent growth in the current year, higher than the consensual industry standards. Apart from offshore service services in the finance and banking sectors, with the opening up of the Asian banking sector, the company is betting on its product Business Bankware to grow around 300 per cent. Polaris has definitely given reasons to the market to monitor numbers closely.

Hobbling Along: HCL Tech (22 April, 2002)

Frontline software major HCL Technologies is not having the best of times. In the nine months ending March 30, the company failed to deliver on forecasted growth of 25 per cent. On a year on year basis, net profit increased marginally by 3 per cent in third quarter to Rs 131.2 crore as compared to Rs 127.5 crore for the corresponding quarter in previous fiscal. During the period, other income from HCL Tech doubled to Rs 41.3 crore from Rs 21.8 crore in the same period last year, while revenues from acquisitions and alliances stood at Rs 54.8 crore, contributing 13 per cent to total revenue.

The company's refusal to provide guidance for the coming year is indicative of sustained market pressures it is facing. The current strategy as of now: enhance services repertoire for value-added offerings through strong focus on application development, domain expertise and IT enabled services. The contribution of end user applications increased significantly to 48 per cent of total revenues, from 38 per cent in Q3 of last year. HCL strengthened presence further in the application development space by entering into joint ventures with Answer Think and Zamba Solutions. The company will also concentrate on offshore revenues and supplement its client base. The company has renewed thrust in nine high-potential verticals spanning Automotive, Aerospace, Petrochemicals, Pharmaceuticals, Semiconductor, Manufacturing, Retail, Banking, Insurance and Funds Management.

Challenging Times: Hughes Software Systems (22 April, 2002)

The downturn eroded the bottomline of India's leading communications developer Hughes Software Systems. Net profit dipped by 17 per cent in fiscal 2001-02 and stood at Rs 52.2 crore as against Rs 62.9 crore in the previous year. The company however upped turnover by 18 per cent to Rs 234.9 crore from Rs 198.5 crore in the previous year. For the quarter ended 31 March, the company posted a net profit of Rs 12.7 crore, down from Rs 22.1 crore in the corresponding quarter last years. Net sales stood at Rs 58 crore as compared to Rs 62 crore.

The company attributed the decline to pressure on billing rates and increase in staff cost, up by 48 per cent. In order to spread business risks, the company has made a foray into the business process-outsourcing segment with an initial investment of $2 million.

The overall environment remains challenging for the company. Last month major telecom giants Lucent and Nortel issued profit warnings and ruled out an early recovery. On a sequential basis, the company anticipates a decline of 5-10 per cent in turnover. The pressure on billing rates would also continue in the next 2-3 quarters, as rates were down by about five per cent in 2001-02. Hughes expected sales to grow in the current fiscal at a modest 15 per cent. Profit after tax is anticipated at 25 per cent of the income.

Bad Effects: Pentamedia Graphics (26 April, 2002)

Adjudged the No 1 computer animation company by the Robi Roncalleri group in 2000-2001, this year's global economic crisis took a heavy toll on Pentamedia Graphics' bottomline. The downturn also bought its own dubious set of honours. On 24 September 2002, sacked employees took to the streets instead of bidding farewell with brave faces. A media on the lookout for juicy details splashed the news on its front pages.

The cash strapped company's problems were reflected in the year's balance sheet as well. For the year ended 31 March, 2002, Pentamedia's net profits were down by a third from Rs 154 crore in the previous year to Rs 99 crore, a steep drop of 35 per cent. Unlike last fiscal year 2000-2001 when the company increased margins despite a decline in net profits, this year total sales and services also plunged by 25 per cent to Rs 441.72 crore from the previous year's Rs 552.38 crore. For the fourth quarter ending 31 March 2002, Pentamedia Graphics Limited reported a 68 per cent fall in net profit to Rs 10.51 crore as against Rs 33.76 crore the corresponding quarter of last year.

Now, the company's chanting the "cash is king" mantra. Its giving the hot chase to customers and during the fourth quarter, joined hands with the US-based Eros Multimedia to form ``Penta-Eros Studio'', a hi-end post-production and graphics facility. For the current year, the company plans to reposition its strategies towards home productions and co-productions not only to own the product but also aim at the long-term pay off. The new strategy, the company hopes, will help it to return to the 20 per cent profitability level. Here's hoping the animation company succeeds in bringing life to its balance sheet.

Short on Drive: Sonata Software (12 April, 2002)

During the IT boom Sonata Software did not take a sharp V turn but let its revenue stream grow at a steady pace of 30 per cent. This year the company's slow and steady strategy did not pay. Its sluggish client acquistion, a mere one client in the third quarter, cost the company heavily. Net profit dived by 53 per cent and stood at Rs 17.81crore as compared to Rs 33 crore in the previous year. The year on year income declined to Rs 83.7 crore as against Rs. 129.78 crore in the previous year.

For the quarter ended 31 March, 2002, the performance was lackluster. Revenues decline by a steep 64 per cent to Rs 16.92 crore from Rs 25.44 crore compared to the corresponding quarter last year. Net profit for the quarter was Rs 2.1 crore as compared to Rs 8.3 crore in the corresponding quarter last year. During the year the company maintained a balanced offshore-onsite mix. Offshore revenue, constituting 55 per cent account for a major part of the income. The company has also derisked its business model geographically. Revenues from US accounted for 59 per cent of the income while Europe accounted for 41 per cent.

Client acquisition gained momentum in the fourth quarter with the company adding five new clients. This could provide the much-needed boost for growth in the as compared to the last six months.

Losing out on USP: Aztec Software (9 April, 2002)

Year 2001-2002 was definitely not the best of times for the high profile SME Aztec Software, which shot into prominence last fiscal for posting a whopping 476 per cent rise in turnover and 390 per cent increase in net profit. The company that provides software services in the Internet application and infrastructure market - the sector battered the most by the slowdown - did not display the characteristic agility that marked its IPO performance. Company growth was derailed by changed market conditions; heavy dependence on few US clients, slow pace of client acquisition and lack of diversification into other verticals.

Quarter to quarter profit fell sharply from Rs 6.84 crore in the first quarter to a mere Rs 62 lakh in the fourth quarter ending 31 March 2002. In the final tally, for the financial year ended 31 March, 2002, the net profit was lower at Rs 16.94 crore as against Rs 18.55 crore. However profits from software was Rs 7.51 crore and other income was Rs 9.43 crore (compared to Rs 1.14 crore other income in the previous year). In real terms this translates into higher drop in profits than the company has reported. Disappointing year from a company whose USP was growth, growth and more growth.

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