SW DEVELOPMENT: The Big Two go for Services

NIIT and Aptech, the two IT training majors are assiduously working to
reinvent themselves as software solution providers.

While the Rs 1,200 crore Delhi-based NIIT is nurturing an ambitious growth
plan to help it reach the Rs 10,000- crore mark by 2006, the Mumbai-based Aptech
expects to cross the Rs 1,000 crore mark by 2002. Both companies expect their
software divisions to generate a major chunk of this revenue.

While growth in the education and training industry has been hovering between 30—46% and is expected to stabilize between 25—30%, the software sector has been growing at the rate of 50—60% and is expected to maintain the graph. Hence, the attraction for software businessExperts
believe that the strategy is worth emulating and the trend of IT education and
training companies venturing into software development is catching up fast.
According to Ganesh Natarajan, CEO, Aptech, “This high-growth, high-return
area (software) coupled with a steady annuity income-based business like
training is a combination worth exploiting.” This is supplemented by the
fact that there is absolute synergy between the two businesses–particularly in
the case of NIIT and Aptech.

Unlike the pure-play software companies in India and across the globe, these
two companies do not have to counter the problem of sourcing the backbone of
this industry–the knowledge managers or the human resource. The software
divisions have access to a large pool of trained professionals, who pass out
every year from their training centers. A quick look at the employee structure
of a typical software company and one realizes that only 10% of them comprise
the top management team. Around 20% are the project managers or the middle-level
solution architects while the remaining 70% comprises entry level resources or
people with 2—3 years experience. Naturally then, companies like NIIT and
Aptech have an advantage over other software magnates when it comes to having
access to human capital. While 25.8% of NIIT’s total manpower of 4,603 is from
its own training institutes, almost 60% of Aptech’s entry-level recruits are
its own students.

The propelling force

The human resource advantage apart, the prime motivating factor for NIIT and
Aptech to venture into software development has been the changing nature of
business itself.

The growth of the software solution business–though going down for Aptech–is still much higher than the learning business. This can provide the much-needed push to their overall growth. Since NIIT wants a 50:50 ratio of the two businesses, it will need to focus on the education business to maintain the balance.The
Indian computer education and training industry came into being around the 70s
when a few private institutes were set up. The industry acquired critical mass
and gathered momentum in the late 80s and early 90s. While the industry has been
growing by 30—35% per year during the last five years, experts expect a
slowdown with the growth rate stabilizing between 25—30% in the next couple of
years. On the other hand, the software industry is the fastest growing segment
and is expected to touch Rs 39,500 crore in 2000—01 according to Nasscom
projections.

According to the H1 2000—01 figures released by Nasscom, the Indian
software industry has already generated a revenue of Rs 17,150 crore as against
Rs 10,860 crore during the same period last fiscal–a growth rate of 58%. While
the sector grew by 53% during 1999—00, the growth during the last five years
has also been quite impressive–from
Rs 2,605 crore in 1995 to Rs 24,350 crore during 1999—00. This translates into
an annualized growth of more than 56%. No wonder then, IT companies are laying
more stress on their software divisions.

Big returns

Initially software development was not part of Aptech’s agenda. However, in
1997, after the company conducted its strategy exercise, the decision to
seriously venture into this business was taken. Aptech set up two entities–while
the first was aimed at helping companies to improve processes, implementing
solutions like BAAN and other ERP, the second was the e-learning business.

The stake of software in the overall revenue seems to be going up for both the companies. While NIIT has an almost equal share in both businesses, Aptech aspires to achieve the same by 2002On
the other hand, NIIT’s software solutions division has basically grown from
its core education expertise. It further evolved with the business opportunity
scenario becoming clearer. At its core is the provision of solutions and
services to help companies become competitive players in the new e-economy, as
also e-commerce. And the results have been pretty good. According to the
company’s balance sheet, NIIT’s software revenue for 1999—00 stood at Rs
611.6 crore representing a growth of 54% over last year.

Aptech has achieved similar results. The company, which started its software
operations in February 1998, closed its balance sheet with a software revenue of
Rs 27.4 crore contributing 10% to its total revenue of Rs 281.4 crore. In 1999,
Aptech’s software revenue share increased to 19% of the total Rs 394.1 crore
revenue. This share has already shown an impressive gain during the first nine
months of the year ending September 30, 2000–the company has mopped up Rs
121.4 crore as revenue from its software business, accounting for 29% of the
total revenue of Rs 429.4 crore. Not to miss the fact that out of the Rs 1,000
crore revenue that Aptech is targeting by 2002, the company wants its software
division to contribute Rs 450—500 crore. Naturally, Aptech is targeting 35%
growth of its training business while it expects the software business to grow
by over 80% during the next four years.

While the trend has been triggered by NIIT and Aptech, others like SSI have
also been treading the path. And experts believe that, over the next 5—10
years, many more training vendors will enter the fray.

SHUBHENDU PARTH in New Delhi

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