Acquisitions and investments form growth strategy for SSI

BANGALORE: SSI Ltd. sees its consolidated software services business growing at 22 to 30 per cent during FY 02-03, while it expects to sustain the operating profit margins at the current levels. Admitting that the billing rates continue to remain under pressure, the company is is confident of achieving growth from volumes. The consolidated software services business contributed 76.7 per cent to SSI`s turnover during the June 2002 quarter, while the operating profit margin stood at 10.1 per cent.

During a conference call organized to discuss the company`s fourth quarter results, SSI management said that the company is also looking at inorganic growth through acquisition of a company or strategic investment in alliances. The management, however, did not given any inorganic growth guideline, stating that it was too early to make a call on it.

SSI plans to invest in strategic alliances, which fulfill criteria such as technology-intensive, potential for offshore business, good order book and visionary management with leadership in domain industry. SSI has reserved free cash of Rs 191 crore to fund these alliances. It has also increased its exposure to debt quarter-on-quarter by Rs 37 crore to Rs 170 crore for the quarter ended June 2002.

The top five clients contributed 37 per cent to the turnover during the fourth quarter (June 2002) compared to 29 per cent in the third quarter (March 2002). The client base stood at 130 in June 2002 quarter, while it was 134 in March 2002 quarter. SSI added six new clients in the June 2002 quarter. These include IDN UK, Agrilliance, and Wasau Paper.

On a quarter-on-quarter basis, the billing rate remained stable - onsite billing rate stood at $92 per hour, while offshore billing rate stood at $ 24 per hour.

Domain-wise, the company’s turnover breakup for the June 2002 quarter is as follows:

BFSI (banking, financial services and insurance) - 32 percent

Government - 11 percent

Industrial - 11.5 percent

High tech - 11.3 percent

Retail segment -13 percent

The education business is expected to show double digit growth as institutional training market is expected to show encouraging growth, while enrollment in the individual students section is also expected rise. The education market had significantly declined during the last few quarters, but the division is expected to see revival in the coming quarters.

The operating profit margin in this division is expected to improve further as the company plans to merge its own operational centres, bringing down the number from 42 to 21. This is expected to reduce head count and boost he margins. The total number of operational centres, including franchisees, stands at 760. The company will continue to focus on the franchise route.

The education business contributed 23 per cent to the turnover during the June 2002 quarter. The operating profit margin of this division improved to 8.1 per cent in the June 2002 quarter from 2.5 per cent in the March 2002 quarter.

The company has formed a two-member committee for restructuring of its operations into software services and training units. The first phase of SSI`s offshore development centre is expected to be complete by September 2002, while the second phase will be commissioned in the next four to six months.

Source: IRIS