Aztec sees further dip in billing rates unlikely

BANGALORE: Bangalore-based Aztec Software and Technology Services Ltd. believes that the worse is over for the IT industry. The company, for the second quarter ended September 2002, reported a 35.27 per cent drop in total revenues and 75.74 per cent erosion in net profit year-on-year. However, quarter-on-quarter, total revenues rose 29.89 per cent to Rs 14.88 crore, and it posted a net profit of Rs 1.69 crore against a loss of Rs 6.73 crore in the first quarter ended June 2002. This despite onsite billing rates dropping to $65 per hour during the said period from $71 in the quarter ended June 3002 and offshore billing rates dipping from $36 to $22 year-on-year.

"The drop in billing rates has been across the industry and not restricted to Aztec alone. However, things may not get much worse from here," said Chinnikrishna Kommi, Aztec country manager and senior vice-president - global delivery.

"The pressure on our rates is primarily due to the shift in the nature of our clients. We are seeing a shift towards established enterprise players, where the volume of business is typically high, but at lower rates. This has affected our rates adversely," Kommi said of the decline in billing rates.

"We aim at improving our utilization levels to help us contain the effect of any fall in billing rates on our margins," Kommi said. Aztec’s offshore utilization rates improved to 85 per cent in the September 2002 quarter from 63 per cent in the quarter ended June 2002. Onsite utilisation rates improved from 89 per cent to 96 per cent during the same period.

Talking about the company’s offshore delivery module, Kommi said, "We do see an increase in revenues from the offshore delivery model. Given that India’s importance is increasing as the preferred offshore services partner/destination, we definitely hope to have a big share in this market."

Aztec believes that the offshore services will see exponential growth. "Until now, we have mostly seen the US markets that have utilised India’s offshore advantages to its maximum capacity. This trend will now change and other markets like Europe will follow suit," Kommi said.

"Currently, we get close to 60 per cent of our revenues from offshore work. We would like to see this between the 65 per cent and the 70 per cent mark," he added. Aztec, with a very liquid balance sheet, has plans for inorganic growth. The company is looking for companies that have good client list and offshorable revenues. Aztec is in systems integration, wireless, Internet and data management technologies and web services.

"We are also looking at companies with vertical domain expertise and those that have feature rich solutions in particular domains. We are not restricting our search to any particular domain. In terms of geography, we are looking at companies with presence in either the US or Europe," Kommi explained.

When asked about the overseas listing, he said, "We do not have any such plan at the moment. We are currently concentrating on growing our business. We will look at US listing once we gain sufficient size and once the market for technology stocks improves." Aztec recently announced that it is US GAAP compliant — a prerequisite for overseas listing.

Talking about reducing dependence on US market, Kommi said, "The US market is primarily divided into the Silicon Valley and the non-Silicon Valley markets. Our earlier clientele comprised mostly of Silicon Valley clients. Our clients now consist of a mix of both, Silicon Valley and non-Silicon Valley clients. Our dependence on the US market has also decreased. We have successfully worked with a few customers from Europe and have set up a branch in London." The company has no plans to enter BPO space at the moment.

(Source: IRIS)