20. Pentasoft Technologies: Post-downpour Calm



FOR
Chennai-based Pentasoft Technologies, fiscal 2000-01 was all about settling in. In 1999-00, the company–then known as Pentafour Communications–had bought over the business software division of Pentafour Software for $205 million in a cash and share-swap deal. Within a year, it had grown by over 450%. This year, however, the growth was far more sedate, 44%, with final revenues being clocked at Rs 583
crore. Gross profits rose by 75%, while the net moved upwards 48% to Rs 126.6
crore. Operating margins grew from 30% to 35%.

SWOT

  • Strength: E-cube business model, which targets the enterprise, engineering and education segments
  • Weakness: Needs to improve its performance in the packaged software segment
  • Opportunity: In the emerging markets like South East Asia, West Asia, Africa and Australia
  • Threat: Education revenues, in the wake of slowdown 

PERFORMANCE 
HIGHLIGHTS

  • Shareholders clear $150-m ADR/GDR to raise funds for two acquisitions
  • Among the few companies to have begun work in the Eurocurrency segment
  • Attained SEI CMM Level 4 certification, and bagged a contract from Ford
  • Set up development centers in Hyderabad and Bangalore, three more in the pipeline

FACT SHEET

Director & CEO: D Kannan
Start-up year: 1995 Collaborations: IBM and Microsoft 

Employees:
3,450 
Branch Offices:
11 
Address:
4 Canal Bank Road, Tidel Park 9th Floor, Taramani, Chennai 600 113 

Tel:
2549600 Fax: 2540052 Website: www.pentasoftech.com

Most of these revenues came from three verticals–banking and finance (33%), IT & telecom (40%) and services (20%). The company’s domestic business continued to grow, even as its training division was affected by the slowdown. There was a surprising undertone to that, for Pentasoft increased the number of outlets significantly. The underlying good news was that Pentasoft emerged as one of the few companies that began work in the emerging Eurocurrency application segment, with 5 per cent of its revenues coming from here.

Pentasoft Technologies has reorganized itself three divisions–enterprise, engineering and education and training. Of these, it was the training division that faced the brunt of the slowdown in this segment as a whole. Over the year, this division saw a growth of about 13%, but operating margins remained the highest of all divisions, at 40%.

During the year, the company also signed a memorandum of understanding to acquire two Australian firms–Rengain Pty and Ozi Resourcing–and the company’s shareholders, at its fifth
AGM, passed a resolution to raise $150 million through an ADR/GDR issue for the purchase. Significantly, the company’s investment in SEI CMM Level 4 certification finally paid off.

It cracked one if its toughest sales yet, bagging an offshore contract from Ford. It set up a development facility for the auto major at its 100,000-sq ft Tidel Park center. This division accounted for 18% of Pentasoft’s revenues in the third quarter. The company is hopeful of further international contracts coming its way once it attains SEI CMM level 5 certification. Pentasoft also expanded operations in India, with development centers being opened in Hyderabad and
Bangalore. In the pipeline are centers at Mumbai, Kolkata and Delhi. Internationally, the company already has software development facilities in Malaysia, Dubai and Mauritius. 

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