Visualsoft (India): Prudent switch in strategy

Recommendation: Hold

Krishnan Thiagarajan

FOR investors with a relatively high appetite for risk, at the declines from the current market price of Rs. 6,850, the VisualSoft (India) stock represents a good entry point with a medium-term perspective.

In a market in which technology stocks have been battered over the past month, the VisualSoft stock, which has also suffered a sharp erosion, still trades at a stiff price-earnings multiple of 159 times its per share earnings for 1999-2000.

Given its sound fundamentals, strong growth prospects, focus on the high end of the software value chain and a prudent division of revenues between software services and products, the stock holds potential for fair capital appreciation from the current price levels.

Over the past year-and-a-half, the company has switched consciously from a product-led strategy to growth to a prudent break-up of revenues between software development services and components/products. Currently, the revenues from services and components/products account for around 50 per cent each of the total revenues. This prudent switch has to some extent mitigated the ``high risk'' element embedded in the stock. In any case, its track record in the product development arena has been extremely good, right from the first blockbuster product developed for Y2K over three years ago.

In the products arena, VisualSoft has developed three key products. Among these, VisualSoft Web Project -- a web-based project monitoring tool and VisualeMart -- which facilitates setting up of online stores with e-commerce capabilities, are expected to be steady revenue-earners for the company. As a comprehensive project management system with features such as project planning, scheduling, messaging and reporting, VisualSoft Web Project which has been widely accepted among software development and engineering/construction companies, has also generated revenues of Rs. 13 crores in 1999-2000 out of its total revenues of Rs. 67.98 crores.

The third product -- VisualESHIFT -- which is basically a Euro-conversion product (and a variant of the Y2K product developed earlier) has been constantly improved by the company and is now equipped to handle multiple currencies. In products, the strategy of tying up with channel partners across the globe has reduced the risk element involved in marketing the products.

Besides products, VisualSoft is also concentrating on the components arena. In components, it is focussing mainly in Java Beans (a Java Component product) and COM/DCOM components. Some of the development suites developed using components are VisualSoft JB Calendar (which uses a powerful Java Bean component to provide customisable calendar display options); VisualSoft WebDevSuite (which uses a set of COM/DCOM components to develop interactive web applications) and VisualSoft FTP (which is one of the fastest way to transfer high volume bulky files over the Internet, from the local hard disk to the FTP server).

In software development services, using a combination of onsite and offshore infrastructure, the company has focussed on offering solutions mainly in the Internet technologies and e-commerce arena. In the former, the focus has been on web-based applications and WAP/net appliances and in the latter on e-security, knowledge management and e-services. The company has recently set up a 1,20,000 sq.ft offshore infrastructure, which is expected to further strengthen its software service capabilities.

For the year-ended March 31, 2000, the company recorded a turnover growth of 124 per cent to Rs. 67.98 crores and post-tax earnings growth of 143 per cent to Rs. 28.18 crores. Product-related sales constituted Rs. 33.38 crores of the total turnover. Given the strong product and software services base, it is likely that the company will maintain a good pace of growth in future.