Convergence of technologies, the new buzz-word

By Ramnath Subbu

MUMBAI, APRIL 30. The shares of companies in the information technology, communication and entertainment (ICE) sectors, after what has been a dream run for a considerable period, have reacted significantly on the bourses. The IT sector had followed the fall in global IT stocks almost blindly although there is a strong distinction between software companies and dotcom companies.

With queries being raised about the lofty valuations accorded to dotcom companies, the so-called `bubble' is about to burst. Questions are being asked by investors and analysts alike about the revenue streams and quality of earnings of these companies. What seems inevitable now in the global and domestic sector is a shake-out. When the dust settles, it is likely that only those with sound revenue streams and growth drivers will survive.

A realistic look at the Indian ICE sector indicates that if one were to go by the earnings potential, there is general consensus and the National Association for Software and Services Companies (Nasscom) in its projections has said that the software sector as a whole will grow by anywhere between 50 and 60 per cent in terms of turnover and profits. The big software players are on a sound wicket and growth in revenues is likely to remain steady unless of course there is a sudden drop in spending on technology, which is an unlikely prospect.

Similar is the case with the communications and entertainment sectors. While there are sound players like Himachal Futuristic Communications (HFCL), Global Tele-Systems and Zee Telefilms, there are other smaller players who shot into prominence by sheer dint of being in the same sector as the ones favoured by the market. As Mr. Nikesh Shah, research head, Triumph Securities, said, ``The well-entrenched players will continue to do well as the prospects are very good. Their performance in the market in no way changes their fundamentals. In fact, most of the players are currently at very attractive levels.''

While Infosys Technologies has reported a more than 100 per cent jump in its net profit for 1999-2000 at Rs. 135.27 crores, Satyam Computers has notched up a 85 per cent plus growth at Rs. 72.8 crores.

According to Nasscom, the software industry earned $5.7 billion last year, a growth of about 50 per cent over the previous year.

Mr. Dewang Mehta, chairman, Nasscom, while speaking on the performance of the software sector earlier had said ``During 2000-01, software exports are expected to grow at an even higher.

The slowdown in Y2K-related projects was offset by new opportunities created in growth areas such as e-commerce and IT- enabled services, which accounted for almost 16 per cent of export revenues generated in the second half of 1999. As Indian software companies have successfully completed Y2K-related projects for more than 104 of the Fortune 500 companies, most of these companies are now giving repeat orders for software projects to India as they have developed confidence and faith in the Indian industry. E-commerce, application service providers (ASPs), IT-enabled services, legacy to web communications software and systems-on-chip are the prominent emerging segments for software exports.

Based on the trends indicated by the Nasscom-McKinsey report, the revenue from software in 2000-01 is expected to grow to $8.85 billion which will consist of $6.32 billion in exports and $2.53 billion from the domestic market. The domestic market is also expected to grow from Rs. 4,950 crores in 1998-99 to Rs. 7,300 crores in 1999-2000 and further to Rs. 11,000 crores by 2000-01. ``The key segments that will contribute towards this growth will consist of software applications in banking, Internet banking, e- governance, healthcare, defence and small office home office (SOHO).'' Mr. Mehta had said.

On the growth of Internet usage in India, Mr. Mehta said, ``We expect the first international gateway for private ISPs to be operational by June which will result in a dramatic increase in Internet usage and connectivity.'' According to the Nasscom survey, Internet connections are projected to go up to 14 lakhs from 6.1 lakh connections while Internet users are expected to increase from the present 2.1 million to about 5 million by March 31, 2001.

Besides, e-commerce transactions are projected at Rs. 450 crores in 1999-2000 and with cyber laws likely to be cleared and implemented by mid-2000, the association expects a 500 per cent growth in 2000-01 with Rs. 2,500 crores worth of online transactions in India.

Convergence of technologies is the new buzzword and the moves by ICE majors in this direction amply bears this out.

Zee Telefilms, in fact, is moving ahead confidently and is reportedly planning to raise $1.5 billion through an ADR issue - the biggest by an Indian company. This in itself is a major move towards becoming a heavyweight in the media industry globally. Its strength in the media business would be further boosted by the presence in satellite telephony, Internet service and Internet content.

HFCL was in the news for the Rs. 1,039 crore investment by the Kerry Packer company, Consolidated Press Holdings. It now has two joint ventures in place in software services and e-commerce and is looking at a turnover of Rs. 1,500 crores in 2001. It is also developing broadband access equipment for providing voice, video and data connectivity over telephone. It is also working on similar solutions for cable TV networks.

Global Tele-Systems has consciously shifted from products to services with emphasis on software rights, software development, e-commerce, and call centres. In fact, the company is developing more than one lakh square feet for a call centre in New Mumbai.

For the year ended March 31, 2000, the company achieved a net profit, before extraordinary items, of Rs. 109.3 crores, a jump of over 70 per cent over the previous year's Rs. 62.7 crores.

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