Nothing Official About It

Though nothing is yet official about the Chennai-based SSI's plans to acquire majority stakes in Aptech Training, the country's leading financial dailies have already made the basic details public. There isn't enough reason not to believe them either; from the initial strong denials made by Aptech's Pramod Khera, the responses have gone weaker by the day. While SSI's general manager for corporate communication initially rubbished the news as "purely market rumors," he went on to add that, "at this point of time we are not in a position to disclose any further details". Similarly, after the initial expression of unawareness about any such developments, to denial of any such move, the Aptech corporate communications team finally said that, "announcements, if any would be made at an appropriate time."

The Deal



Touted as the biggest coup in the Indian IT education market in the recent times, the deal-if it comes through-will help the Chennai-based software and training company SSI to acquire majority stakes in the Atul Nishar-promoted Mumbai-based Aptech Training. According to the information available till the time of going to press, SSI is likely to acquire 27.74% stake held by Nishar in Aptech. Also, the two companies have agreed to an all-cash deal, as Aptech's promoter wants to completely get out of the IT training business. 

Beside paying around Rs 24.46 crore for 49,85,967 shares held by Nishar, SSI will also have to make an open offer to acquire additional 20% stakes in Aptech as per the Securities and Exchange Board of India's (SEBI) guidelines for takeovers. Given the current price trends of Aptech's share price on Bombay Stock Exchange (BSE), SSI would also have to shell out an additional Rs 16 crore as payout for the same. Strangely, while SSI's chairman and CEO Kalpathi S Suresh, had suggested in 2002 that the company was actively considering getting out of the IT training business as the Indian IT industry has overcome the manpower crunch thereby making the business unattractive, Aptech had, throughout the troubled times, maintained a positive note. 

Who gains what?



Notwithstanding the non-committal answer from both the companies, the expected Rs 40.46 crore acquisition does makes sense for both the companies. According to market observers, Nishar has been trying to get out of the training business for quite sometime now and focus entirely on the software services business. Not to forget that Aptech's software services business was demerged from the training division in December 2001 and merged with another Nishar-promoted company Hexaware Technologies. The training division was later registered as a separate company and listed as Aptech Training.

A set of analysts believe that SSI's main reason to buy Aptech can be its attractive global business proposition and given Suresh's view on the domestic IT training market, it does not seem too far fetched either. Consider this: Aptech's revenues from overseas operations jumped from Rs 12.12 crore in OND 2001 to 49.15 crore in JAS 2002. On the other hand, Aptech has lost shine in the domestic segment-from Rs 83.83 crore in OND 2001 to Rs 45.64 crore in JAS 2002, thereby validating Suresh's comments on the domestic market. 

Reports also suggest that the merger might give a new lease of life to SSI as its revenues have taken a severe blow in fiscal 2001-2002, which it ended with Rs 328 crore, a fall of 23% compared to the previous year (2000-01), which saw the growth rate soaring to 168%. Meanwhile the company's education revenues stood at Rs 21 crore in Q1 (JAS), 2002-03. While Q2 results are not yet out, but sources say that the worst is over and IT training industry as a whole is on a consolidation phase. With revenues and enrolments stabilizing after a steep decline, the merger with Aptech will help SSI to further consolidate itself. 

Sources also suggest that after the takeover SSI is likely to retain both the brands and leverage from their core strength. While SSI is considered a top brand in the short-term emerging technology courses segment, Aptech is a more powerful brand in long-term courses. This brings a natural synergy with the former being a major player in courses related to emerging technologies such as networking, e-business, client-server technologies and bio-informatics while the latter enjoys a significant share in the market for long-term courses. SSI would also benefit from Aptech's footprints across the world-2,199 centers in India and 250 centers across the globe. The company also operates on a bi-pronged strategy-one caters to the IT education and training segment the other focused on multimedia. The possible synergy in terms of delivery and reach of the combined entity is also expected to be huge and the IT education market which is triangular at present, with NIIT on top followed by Aptech and SSI, will become bi-polar.

But there are more thorns than roses as it might appear from just a simple revenue-to-revenue comparison of the merged entity and NIIT. While the deal might bring the combined strength of the two much closer to NIIT's 27% market share-between SSI and Aptech the market share is likely to be in the range of 27% squaring it off with NIIT in the Rs 1,600-crore industry-a quick look at the quarter-to-quarter growth of the three companies throws an all together different picture. While one may also like to believe that the new entity might be able to overcome these hurdle to emerge a lean and mean machine, given the size of the joint company the transition may stretch to over six months and these period of uncertainties can actually see the SSI-Aptech combine lose more market share than what they can gain-reversing which would be another arduous task that Suresh & Co will have to manage. 

SHUBHENDU PARTH In New Delhi With inputs from G SHRIKANTH in Chennai