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Cranes Software International: Consolidation Phase

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DQI Bureau
New Update

After its success in the software services area, India Inc is
making its tentative steps in the product area too. Emboldened by the success of
companies like i-flex, Infosys and some startups, Indian entrepreneurs have
realized that the success in the services area can be repeated in the product
area as well. Successful companies in the products area have focused on creating
a value for money product and then concentrated in taking it to the market.

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Many of these companies, especially the startups, have been
founded by Indians who have spent many years in the US markets and understood
the dynamics of those markets, which are significantly different from the
services marketing. The Indian product companies have followed essentially two
strategies. One is to enter the emerging markets like Africa, South Asia and
Middle East with relevant business where competition from the US and Europe is
limited. The other one is to focus on niche markets that are not the focus areas
of larger software companies.

FACT
SHEET

Website:
www.cranessoftware.com

4th Floor,Block 1, Shankar Narayana Building,

25, MG Road, Bangalore 560001.

Tel: +91 80 41231275/ 6/ 7

Fax: +91 80 41231274

Area
of Specialization:

Scientific and engineering software products
Consolidated
Revenues

(March 2006): Rs 213.82 crore
Offices:
USA, UK, Germany, Singapore and India
Listing
(Stock Exchanges):
BSE
and NSE
Face
Value:

Rs
2 per share
Current
Market Price (RS):
104.15
52-Week
High/Low:
124.4/93.1
BSE
Code:
512093
NSE
Code:
CRANESSOFT

Among the companies that have successfully approached the market
with a niche product strategy is the Bangalore based Cranes Software, which has
performed well in addressing the scientific software markets, leveraging the
Indian cost advantage to create new technology products that are not available
from competition.

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Cranes Software International (CSIL) was co-founded by Asif
Khader and Mukarram in Bangalore in 1991. It began business mainly as a
distributor of scientific and mathematical software products from Matlab and
grown into a solutions provider for scientific and engineering products. The
company started as a distributor of anti-virus software in Bangalore and later
moved onto become authorized distributor of MATLAB in South Asia in 1993. Asif
Khader, a BE in Computer Engineering, is the MD and chairman, and Dr Rudra
Pratap is the head of Cranes Software MEMS Research. The company has presence in
33 countries and claims a user base of more than 360,000.

The company's current equity stands at Rs 22.73 crore with
promoters holding 38% institutional investors holding 40.62% and the balance
21.38% being held by the public. The company became a listed company through its
amalgamation with Eider Commercials in the year 2000. CSIL has a fully owned
subsidiary Systat Software Inc, headquartered in California.

For the fiscal year ended March 2006, Cranes Software reported
revenue growth of 31% amounting to Rs 213.82 crore as compared to Rs 163.26
crore in the previous financial year. Overseas revenues, from the sale of
products and services rendered, increased by 30.9% to Rs 162.60 crore from Rs
124.20 crore, which is 77% of the year's revenues earned during the financial
year whereas sales and services rendered domestically were Rs 42.75 crore
contributing the balance 23%. The net profit for the same period was Rs 62.48
crore, up 36% as against Rs 46.03 crore achieved last year.

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During the year, Cranes Software acquired InventX's ePM an
Enterprise Project Portfolio Management solution for distributed project teams
along with InventX's global operations. Cranes launched its new version of
NISA 14.0 and SigmaPlot 10.0 during the year. It also launched the Japanese
language version of SYSTAT 11. This is the second localized software launch by
Cranes in Japan to facilitate a local language specific graphic user interface,
online helpdesk support and technical manuals.

The company's wholly owned subsidiary Systat Software entered
into a strategic alliance with Equbits LLC, a provider of SVM (Support Vector
Machines) based predictive modeling software. The company also bagged the CII
Innovation award for its business model concept 'Acquire-Enhance-Expand' at
the completion CII India Innovation Summit 2006.

Cranes Software declared healthy results for the second quarter
ended Sep 2006. Its revenues increased by 34% to Rs 66.68 crore compared to Rs
49.86 crore. Net profit increased by 54% to Rs 21.05 crore from Rs 13.66 crore.
Revenues from overseas sales increased by 63% to Rs 57.67 crore from Rs 35.72
crore in the same period last year a contribution of 82.86%, whereas sales and
services rendered domestically were Rs 11.92 crore, contributing the balance
17.14%.

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During the quarter ended September 2006, Cranes Software
Launched InventX SP2M 4.0 (Strategic Project Portfolio Management). InventX SP2M
4.0 offers solutions focused on business planning and product development
environments. The company also acquired the US operations of Engineering
Mechanics Research Corporation's (EMRC). Through this acquisition Cranes has
access to EMRC's IP range.    

While the topline growth of the company is moderate, we believe
that the company is building a strong business model capable of much higher
growth and will continue to see significantly higher margins than most of its
peers in the services arena in the near to medium term.

Consolidated
Financials

Year ended 31st March

2005

2006

2007*

Sales

163

214

284

Other Income

-0.1

3

4

Operating Profit

93

118

156

Operating Profit Margin (%)

57

55

55

Net Profit

46

62

83

Equity Capital

10

23

23

EPS (Rs)

9

5

7

*Projected

Note: All figures in Rs crore unless indicated otherwise. All figures
are rounded-off

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The shares of Cranes Software currently trade at Rs 104.45,
discounting its 2007 earnings by 14.5 times. While this valuation seems
reasonable considering the size of the company, we believe that they still do
not fully take into account the high margins and the potential for future growth
of the company. Hence, we believe that the company will continue to outperform
its peer group in the medium term.

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