Prithvi Solutions High On Ground

Growth is an imperative for survival in the rapidly

consolidating world of software services. This is even more critical for the

majority of Indian companies whose services offerings are across domains and

technology platforms. Also, they need to reach a critical of operations to

benefit from the economies of scale, as opposed to niche companies that leverage

their domain specific skills to compete in the marketplace.

To grow rapidly, many Indian companies have chosen the path

of mergers and acquisitions. Others, however, have focused on investing in

management of time and resources to develop a strong marketing infrastructure to

ensure rapid client acquisition, even if it is for low margin onsite business.

Among such companies is Hyderabad-based Prithvi Information and Solutions.

Promoted by V Madhavi, and V Satish Kumar, the company

started its business in 1998 with outsourcing contracts. Over the years, it

evolved into a solution provider with a number of services that meet most of its

client's outsourcing needs. The company provides software solutions across a

host of technologies and platforms. Prithvi has software solutions design and

development centers and marketing offices across US, and in Singapore.

Prithvi's offshore delivery centers are in Hyderabad and Bangalore.

The company provides technology and process outsourcing

services to BFSI, Healthcare, Manufacturing, Distribution and Logistics and the

Services sectors. It has served over 85 client relationships in US and India. It

is one of the fastest growing companies in India and has achieved a compounded

annual growth rate of 84.16% in revenues since its inception. The company

presently has 55 active clients and about 65% of business comes from repeat

orders from current clients. The company's client list includes John Hopkins

University Hospital, Merrill Lynch, State of Ohio, T-Mobile and Meijers McKesson

among others.

Prithvi entered the capital market in October 2005 with a

public issue of 5,000,000 equity shares of Rs 10 each, comprising of fresh issue

of 5,000,000 equity shares. The equity shares are listed on the Bombay Stock

Exchange (BSE) and the National Stock Exchange of India (NSE). The company

priced the issue at Rs 270 per equity share of face value of Rs 10, which was

oversubscribed 16 times. The proceeds of the issue would be used to setup an

offshore delivery center in Hyderabad with a 1500-seater capacity, to meet the

working capital requirement and meeting issue expenses. The company's current

equity stands at Rs 18 crore with promoters holding 40.4%, institutional

investors holding 13.5%, the Indian public holding 25.7% and others holding the

balance 20.2%.

The company had reported impressive set of accounting

figures for the financial year ended March 2005 with revenues amounting Rs 305.1

crore, up 23.6%, as compared to Rs 246.7 crore last year. The net profit for the

same period stood at Rs 28.6 crore, up 57.6% as compared to Rs 18.1 crore in the

year-ago period. The onsite revenue was Rs 299 crore, with a 98% contribution,

which is high as compared to other small and mid size India IT companies.

Revenue from offshore contributed 2% of the total revenues in financial year

2005.

For the third quarter ended December 2005, the company

registered a healthy growth in terms of revenues, which were up 15%

sequentially, at Rs 116 crore. Net profit was Rs 14.3 crore, up 20% as compared

to Rs 11.9 crore in the immediate previous quarter. The net profit grew 90%

y-o-y as compared to Rs 7.5 crore.

The company's client base includes firms from diversified

industries such as Technology, Healthcare, Manufacturing, BFSI, Retail, Telecom,

and E-Governance. Prithvi's top client contributed about 3.9% of the total

revenue in the financial year ended 2005. Top five clients together contributed

about 16.2% and top 10 clients contributed 28.9% of total revenues.

Prithvi follows two strategies to meet its human resources

requirements. The company's key employees both in India and overseas are hired

directly on Prithvi's payroll, whereas the company outsources technical

programmers from technical professional agencies in the US. Project leaders,

project managers, domain experts and business development staff are on

company's payroll. Other non-key employees in the US are resourced using a

combination of personnel employed directly by the company and of those on

contract.

Prithvi currently has an employee base of about 1,000, out

of which about 300 are on the company's payroll. This includes about 180

employees in India, and 120 employees in the US. The remaining 700 employees are

consultants, hired from different staffing vendors in the US. This strategy

helps the company avoid visa processing, time and working capital costs for

travel and stay, but consultant charges are 30-40% higher than having employees

on the payroll. Further expenses such as training and certification push up the

cost per consultant, resulting in lower margins.

Going forward, the company will continue to post a 40%

topline growth for next two years. It is expecting to do a lot of turnkey data

solutions, turnkey network solutions and RF engineering solutions. Prithvi is

also entering into a new strategic business unit-knowledge process

outsourcing-and is also setting up R&D labs for corporations in the US and

academic universities there. These are the three main areas that the company is

looking into for revenue growth. In terms of verticals, it will be in the

research segment in universities and research for conglomerates in the US, as

well as retail healthcare and the government sector in the US.

Prithvi Information Solutions currently trades at Rs 400,

discounting our projected March 2006 EPS by 17 times and March 2007 EPS by 11

times. While its revenue growth has been spectacular, the low margins and focus

on onsite business, limits company valuation in the near term. We believe that

the company will be able to make the crossover to higher profitability in the

medium term and move along with its peers in the stock markets.



Market Performer.

Sushanto Mitra



The author is the founder of Technology Capital Partners



sushanto@techcapIndia.com



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