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Focus on emerging tech props SSI net

NetScribes/Abhijit Basu

Buoyed by a massive increase in non-operating income and a jump in the revenues of its technology arm, SII Ltd's net profit zoomed by 186.7 per cent in the quarter ended December 30, 2000

While SSI net income soared 172.14 per cent to Rs 1.15 billion during what was the company's second financial quarter, its non-operating income soared by a whopping 2695.79 per cent to Rs 77.76 million for the quarter. The company clarified that it included Rs 36.43 million against exchange rate difference.

SSI Technologies' (SSIT) contribution to its parent's total revenues grew to 40 per cent from 34 per cent in the preceding quarter. SSIT is the software development and consulting division of SSI Limited.

Analysts attributed the substantial increase in revenues to the division's increased focus on high growth areas like e-commerce, telecommunications and related developmental activities.

"SSI Technologies is the fastest growing division in the group. It has a target of $40 million for FY01 and I think they are well on course to achieving that. SSI Ltd has set itself a target of $100 million, and at this rate, it might overshoot the target by about 10 per cent," said a senior software analyst at Span Capital Services.

SSIT added 14 new clients in the latest quarter, including Refco of Singapore, Wojewodski Hospital of Poland, Volbroker of UK, and Barclays Capital of UK.

The acquisition of US-based AlbionOrion was completed in December 2000. It is, however, still unclear if the merged entity would continue to function as a division of the company, or would be hived off.

"Continuing with the new entity as a division of the company would attract a lot of goodwill owing to AlbionOrion's billing rates, which are higher than those of SSI," said Manish Agrawal, software analyst at Pranav Securities.

However, the rapid growth in the technologies division was partly offset by a marginal drop in the revenue share of SSI's education division - from 58 per cent to 55 per cent in the preceding quarter.

SSI Education added 106 new centres during the quarter. While its own centres went up to 206 from 202, franchise centres went up to 293 from 191. However, analysts saw more sense in adding own centres as they allow better profit margins, and expected the company to toe this line in the coming quarters.

"Own centres earn higher margins of up to 45 per cent, as against 15 per cent in the franchisee model. As the company is gong to pursue the former model more vigorously in the future, the division's earnings should grow faster in the next quarter," said the analyst.

The enterprise and support division of SSI Ltd contributed 5 per cent of total revenues in the latest quarter, as against 8 per cent for the preceding quarter.

Meanwhile, the SSI scrip reacted sharply and fell 7.30 per cent to close at Rs 1459.45 at the Bombay Stock Exchange. At its current market price, the scrip is trading at a forward earning multiple of about 105 with an annualised EPS of Rs 13.95 for FY01 ending June.

Analysts feel there could be some short-term downsides to the scrip price as the numbers are below market expectations.

"The scrip might be on the downside for a couple of days, but it should bounce back with a jump of a minimum of Rs 200 in a few days' time. The zigzag pattern it has been following for the last few days should even out in a couple of days," said AG Date, senior software analyst with BHH Securities.

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