The Hindu Business Line : SSI: Hold/Avoid fresh exposures

THE slowdown in the US has taken a heavy toll on SSI's financial performance for the year ended June 30, 2002 . The financial contours of both the education and software services have deteriorated . On a standalone basis, the company's revenues declined 35.6 per cent to Rs 264.28 crore. Owing to a drop in `other income' and a near two-fold rise in depreciation (on account of certain adjustments), the sustainable post-tax earnings fell 89.8 per cent to Rs 7.99 crore and the operating profit margin by around 2.18 percentage points to 22.48 per cent.

On a sequential (quarter-on-quarter) basis, there was marginal improvement in revenues (of both education and software services division) and operating profits of . However, on a year-on-year basis, SSI's revenues (from both education and software services) dipped by nearly 35 per cent, recording a net loss (before extraordinary items) of Rs 0.59 crore.

How have the two divisions of SSI performed and is the sequential growth sustainable<>Software services>: On a consolidated basis (including subsidiaries), SSI's software services division has performed well on the revenue front, by strengthening its focus on the BFSI and government domain, and consolidating its existing client relationships. But the future growth in operating and net profits hinges upon SSI succeeding in enhancing the offshore component of its revenue streams. The dependence of US geography (accounting for 85 per cent of its revenue streams) also remains fairly high and is a cause for concern.

<>Education>: To counter the slowdown, which has hit the education business fairly hard, SSI has changed its focus and has been working on three strategies for the past nine months. Of these, the focus on the institutional business appears to have paid off, with SSI bagging contracts for IT training from government agencies and corporate bodies this year.

However, its franchisee-led model for growth and its focus on all the rungs of the IT training chain exposes it to competition from more entrenched computer education majors. Hence, the growth prospects for the education business may remain sluggish for some time to come.

Finally, SSI is looking at software services and education as two different businesses and has mandated two independent board members to evolve an overall strategic perspective. Based on the recommendations of these members, the SSI board may consider different proposals. In this backdrop, SSI shareholders may remain invested. But fresh exposures may be avoided for now.

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