Cranes Software: Powering Ahead

In a sector dominated by stories of countless failures, the emergence of a
few success stories has always been a pleasant surprise. The reasons for the
lack of success in software products area: lack of a high level of resources and
missing marketing expertise-both of which typically ail the Indian product
companies.

Bangalore-based Cranes Software International, having realized the problems
of building a new product in a polarized marketplace, chose to acquire an
existing product suite and build on it-rather than creating a new product.
This strategy has been successful until now, however, it remains to be seen how
the company will develop this product line further and how the revenue will
grow.

Incorporated in the year 1991 and listed through its amalgamation with Eider
Commercials in 2000, Cranes Software International (CSIL), which began as a
domestic product distribution and training company, today generates almost
three-fourth of its revenues from the sale of its own products-that have been
acquired from software major SPSS and AISN Software. The company is also into
distribution of products from Mathlab, Witness, Simba, Nucleus among others.
CSIL's third line of business is training on scientific software products for
which it has tie-ups with Mathworks, Texas Instruments and Rational Software.
Today, CSIL has its presence in 38 countries across the world and has a user
base of more than 200,000.

CSIL also has a fully owned subsidiary called Systat Software Incorporated,
headquartered in California, which, in turn, has its subsidiaries in the UK,
Germany, Singapore and the Asia Pacific. In the past six years, the total income
has grown from Rs 5.3 crore to Rs 113.7 crore, whereas its net profit has risen
from Rs 0.7 crore to Rs 32.5 crore-at a CAGR of 67% and 90% respectively. The
company's current equity stands at Rs 10.2 crore, with promoters holding at
34.6%, institutional investors at 26%, the Indian public at 5.3%, and the
balance 24% being held by others.

For the fiscal ended March 2004, CSIL reported excellent results, wherein the
consolidated revenues grew 86% amounting to Rs 113.7 crore, compared to Rs 61
crore the previous year. The net profit for the same period was Rs 32.5 crore,
up 132% as against Rs 14.1 crore last year.

Overseas revenues from sale of products were a major contributor (81%), at Rs
91.6 crore, registering a 97% growth, compared to Rs 46.4 crore last year.
Revenues from the domestic markets clocked a 51% growth, at Rs 14.6 crore,
contributing the balance (19%). On a geographical basis, its revenue spread was
quite diverse: While the US and North America contributed 8% of the total
revenues, at Rs 9.1 crore, Europe contributed 3%, at Rs 3 crore. As mentioned
earlier, revenues from India made up 19%, at Rs 21.3 crore and the rest of the
world contributed the balance 70%, at Rs 80.4 crore.

For the third quarter ended December 2004, CSIL's revenues were Rs 36.5
crore, up 26% compared to the same quarter the previous year. The net profit for
the same period, at Rs 10.1 crore, was up 19% compared to the same quarter the
previous year. Revenues from overseas sale of products contributed 80% amounting
to Rs 29.1 crore whereas sales and services rendered domestically amounted to Rs
7.4 crore, contributing the balance 20%, registering an 18% and 72% increase
y-o-y. The employee headcount decreased by 17 in the third quarter taking the
total staff strength to 256.

CSIL with MathWorks announced the availability of Mapping Toolbox 2 for
MATLAB, through the former's product distribution network in India. This would
support key mapping and geospatial data analysis, manipulation and visualization
tasks useful in applications such as earth and planetary scientific research,
oil and gas exploration, environmental monitoring, insurance risk management,
aerospace, defense, and security. CSIL, in collaboration with Germany-based
dSPACE, launched a new DS1006 Processor Board that provides solution for
processing-intensive hardware-in-the-loop simulation.

Recently, CSIL launched SYSTAT 11, the latest version of its integrated
desktop statistics and graphics software package that helps translate raw data
into meaningful discoveries solving real-world problems. The package provides
researchers with statistical and graphical capabilities, with analytical
efficiency. During the quarter, CSIL signed a reseller agreement with Lyrtech
Incorporated, to act as its authorized distributor of products and solutions in
digital signal processing technologies. In addition, CSIL entered into a joint
venture agreement with Dubai-based Kanoo Group LLC to provide Computer Software
and related services in the Middle East.

Going forward, the company is looking to align its resources by further
developing its existing products and acquisitions with the aim of achieving a
greater share of the global scientific and engineering industry.

Cranes Software currently trades at Rs 526, discounting its 2004 and 2005
earnings by around 14 times and 12 times respectively. We had put an
"outperform" rating on the stock when it was Rs 375, appreciating by
40%. While we believe that the stock may not repeat the same performance in the
near term, we would, still, stick to our earlier rating on Cranes. Outperformer.

Sushanto Mitra The
author is the founder of Technology Capital Partners The views reflected here
are of the author and not of this publication. No liability is accepted for
losses based on the information presented here