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.

Experts

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

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.

On

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