IT in overdrive

Krishnan Thiagarajan

IN THE last two-and-a-half years in which industrial production has experienced a slowdown, the software industry has become a virtual powerhouse.

The sector, which recorded an annual growth rate of 50 per cent over the past five years, has sustained and even improved on the pace of growth in the 2000-01 first quarter.

From an analysis of 20-25 frontline and medium sized software companies, the following broad trends were evident (the low-rung companies were not taken into account as their scalability and the ability to undertake complex projects remains untested):

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Frontline companies: E-commerce was the mantra that helped frontline companies, such as Infosys Technologies, Satyam Computers and Wipro, make a smooth transition into Y2K. For Infosys Technologies, which recorded 108 per cent growth in other income and 100 per cent growth in post-tax earnings in the first quarter of this fiscal, the contribution of e-commerce surged to 28.7 per cent of revenues, compared to 6.4 per cent in the corresponding previous period. This was also up from 18.8 per cent in the fourth quarter ended March 31, 2000.

Satyam Computer Services, which recorded a 76 per cent growth in turnover and a 95 per cent growth in post-tax earnings, also saw a surge in e-commerce projects in the first quarter. E-business projects, which contributed 17.4 per cent of revenues for 1999-2000, rose to 25.3 per cent.

Even as a diversified entity, Wipro recorded a 47 per cent growth in turnover and an impressive 129 per cent growth in post-tax earnings. The global IT services division, Wipro's flagship, recorded an 82 per cent growth in total revenues, with operating profit margins of this division improving 8 percentage points to 31 per cent in the first quarter.

Compared to the earlier organic growth and acquisition-led strategy to maintain and bolster revenues, the frontline companies aim to leapfrog into the global league through strategic alliances and investments (directly and through venture capital funds) and through joint ventures.

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Medium-sized companies: Medium-sized companies, working from a relatively small revenue base, recorded growth rates which either kept pace or even surpassed the frontline majors. However, the ability of these companies to take up high technology projects, scale up operations to international levels, evolve risk management strategies to deal with technological obsolescence, and deal with employee retention and geographic/client concentration remains to be seen.

These uncertainties have contributed to a steep fall in the prices of companies in the post-Nasdaq meltdown since early April. Companies such as Silverline Technologies, PSI Data Systems, DSQ Software, Orient Information Technology, SSI and Sonata Software fall in this category. Among these, the outperformers were Orient Information Technology, VisualSoft, Mascot Systems, PSI Data Systems and Polaris Software. The underperformers were Infotech Enterprises, Leading Edge Systems and BFL Software.