SSI to sell training centers to franchisees

CHENNAI: SSI Ltd., a leading Indian software education and services firm, is

in talks with its existing franchisees to sell some of its company-owned

computer education centers, the firm's chief said on Thursday.

"It is part of a long-term strategy to further growth of the education

business through a franchise model, where SSI focuses on strengthening the

brand, content and supply chain," chairman and chief executive Kalpathi

Suresh told a news conference.

Suresh said the move would involve selling a majority of the 42 centers owned

by the firm to franchisees. He said the action would significantly boost cash

flows and reduce capital expenditure on the education business. He declined to

put a specific figure on the capital savings or one-time earnings the firm

expected to gain through the move.

"We intend to do this in a phased manner over the next two to three

years and will primarily look at selling these centers to our existing partners.

We will however retain a few centers in some key regional cities."

SSI, which has computer training partnerships with leaders like Microsoft ,

Oracle and Sun Microsystems , currently operates 601 centers in India and 18

overseas centers spread across Asia, Africa and the Middle East.

The firm's education business contributed over 55 per cent of its operating

income in the third quarter ended March. The firm's earnings per share rose 60

per cent to Rs 12.98 in the quarter.

Significant layoffs unlikely



Suresh said the firm did not foresee significant reductions in the 1,300-strong
workforce at its education business.

"We expect to minimise the layoffs by redeploying as many people as

possible in other roles in the division or moving them to areas like software

development or giving them a choice to continue to work at the centers with our

franchisees," he said.

The firm said the 559 franchisee-run centers, including 232 centers

partly-owned by the company and run under an educational service provider (ESP)

model, currently contributed two-thirds of the revenue in the education

business.

"We expect revenues from the franchise operations to continue to grow

steadily in the coming years as we move to have our ESP center operators also

become full-fledged franchisees by buying the centers over the next four to five

years," Suresh said.

Suresh said the firm's operating margins in the education business would also

change in the next couple of years during the course of the transition.

"Our operating margins in education today are at an average of 26 per cent,

varying from 34 to 35 per cent for owned centers to 15 to 20 per cent for

franchise centers. Over time the margins may lower as a percentage but the size

of profits in the education business should continue to grow year-on-year,"

he added. SSI's shares closed at 293.15 on Thursday, up 0.8 per cent. The Bombay

index closed up 0.17 per cent.

(C) Reuters Limited 2001.