SSI records Rs 144 million-Q4 loss

Suresh Seshadri

CHENNAI: Computer training and services firm SSI Ltd stunned investors on

Monday by posting a loss for the April-June quarter, caused by a sharp fall in

the profitability of its training courses and an investment write-off. The

results sent its shares tumbling as much as 15.5 per cent.

SSI posted a loss of Rs 144.58 million ($3.07 million), reflecting a

write-off of Rs 200 million in the value of a strategic investment in

Netfinex.com India Ltd - an Internet-based securities trading firm. Yet even

before the write-off the results were far below analysts' expectations.

Net profit before the extraordinary item was Rs 55.32 million, down 68.5 per

cent from the preceding quarter. "No one expected the results to be so bad.

It has posted a loss of about Rs 30 million in the fourth quarter at an

operating level itself," said S. Krishnakumar, vice president for research

at Anush Shares and Securities.

Profit before tax totaled Rs 113.9 million, inclusive of investment income of

Rs 142.4 million. SSI's shares plummeted to Rs 168 on the announcement, made

just before the market opened, before recouping a little to end Monday at Rs

172.80, down 13.08 per cent. The benchmark index closed up 0.39 per cent.

Krishnakumar said the outlook for the firm and its shares, was bleak.

"I think the company is going to really struggle a bit in the next two

quarters and unless something extraordinary happens in their technology

business, I see them facing tough times."

Return on Education



SSI chief executive Kalpathi Suresh, in an earnings conference call, said the
education division's operating margin had fallen to just over 10 per cent, less

than half the 22.2 per cent average in the year to June. The operating margin -

or revenue less operating expenses - at the key division topped 25 per cent in

January-March.

"Given that the April-June quarter is traditionally a quarter when

education does very well, our revenues in education actually fell eight percent

on quarter," Suresh said. Total revenue fell 13.4 per cent on quarter to Rs

898.4 million, with training contributing 57.8 per cent.

Worst over for Education



Indian training firms have been hit in recent quarters as a slowdown in the
US technology market has depressed enrolments. The sector's largest firm, NIIT

Ltd, stunned the market in July when it reported a 93 per cent plunge in profit

for April-June from a year ago.

Rival Aptech Ltd soon followed by posting a 94 percent fall in profit on the

same basis for the period. Suresh said, though, he expected the slump in the

technology education market would end in the current quarter.

"The overall education market has shrunk by about 20 to 25 per cent and

we believe that though there is still a little bit of settling happening in the

market, it has more or less bottomed out in July." SSI's leadership in

niche short-term, high-end courses would help it recover faster as students

increasingly appeared to be opting for shorter courses, he added.

Consolidating software services



Software service revenue fell by Rs 60 million on quarter to Rs 379.3
million, as clients demanded lower hourly billing rates, Suresh said. "Our

rate in the quarter for offshore work was $24 and for onsite was $58, versus $26

and $59 in the previous quarter."

He said SSI's services subsidiary in North America was consolidating after it

had just completed the integration of Delaware-based AlbionOrion Co (AOC) that

was acquired last December. "AOC had revenue of $7.5 million in the last

quarter but had a negative EBITDA of 9.2 per cent as we went through a process

of staff rationalization and have started amortising $16 million in AOC's

goodwill at $68,000 a month."

He said the North American subsidiary was expected to turn a profit in the

second quarter of the year to June 2002, as it currently had orders worth $27

million for execution in the year. The total pipeline for the technology

division including SSI Europe and SSI Singapore is about $48 million, he said.

(C) Reuters Limited 2001.