The Dream Run

Why is VAT a 'transparent' tax? How is VAT a self-assessment tax? How
will VAT change the way I maintain my account books? How is VAT liability
computed? Concerned faces threw these volley of questions at chartered
accountant Twinkle Gardi, who, for the umpteenth time, patiently went through
the process of demystifying VAT. She counselled more than 300 small businessmen
at the seventh day of the Tally Mela at Bangalore.

Tally Solutions' Tally Mela, spanning across 10 cities, was a masterstroke-it
was not really a sales strategy, only a 'visibility' strategy. But for the
bulk of SMEs, this and other road shows, create the convenience of buying. And,
in the last 15 years of the Indian IT industry, perhaps no other product had
been as visible as Tally was, in the last two months. The Mela reached out to
nearly 10 lakh end users, giving them an opportunity to interact with experts on
issues relating to TDS, service tax and VAT.

And here comes the big news-from being a Rs 100-odd crore company in FY '04,
Tally reportedly closed the last financial year with a turnover of Rs 300 crore
plus; growing from 150,000 legal customers to 600,000. Most of the growth, it is
said, came in the last two-three months-partly because of VAT, and also due to
capacity changes at the company. Still more fascinating is Tally's future
projections. It is gunning a phenomenal growth path to touch Rs 10,000 crore by
the end of financial year 2007-08. And if managing director Bharat Goenka is to
be believed, this is only a modest estimate!

The Agenda

Tally's steep jump in FY '05 and its target of Rs 10,000 crore in three
years, looks surprising, specially when compared to its gradual growth in
previous years. But, it appears more reasonable when you consider this: There
are 8 mn small establishments who will be affected by changing tax statues or
standards. Almost half of these are computerized and 90% of them use Tally,
legally or otherwise. Piracy, in fact, is very high-so much so that one
estimate puts it at 90% of Tally's market share. So, even if the company was
to somehow bring down piracy by 5-8% every year, it will grow by 8-10 times,
purely on account of piracy, not because of market growth. There is genuine
effort to bring down piracy: Tally was selling the single user version at Rs
22,000 and the multi-user version at Rs 45, 000 some time back. From April 1, it
is available at Rs 6,300 and Rs 17,100 respectively.

The Rs 10,000-crore vision-can he pull it off? Bharat Goenka of Tally is attempting to touch this landmark by 2007-08. Tally reportedly closed the last financial year with a turnover of Rs 300-odd crore

The Rs 10,000 crore mark also looks possible when you learn that Tally is
fast foraying into the large enterprise space-it was always consciously
positioned in the SME market-besides expanding outside the country and
exploring opportunities in education. "Aiming for Rs 10,000 crore, on a
much wider canvas of multiple countries, in the large enterprise and education
space, in fact, may seem like we are not very ambitious. We are just trying to
realize the present potential," says Goenka.

Six months ago, JL Infomatrix had more people than Tally-we were about 150 strong, Tally had 80 people. Today, they have more employees than us. And they are recruiting top talent” D Kalyanaraman, MD, JL, Tally partner

Besides the immense domestic opportunity, what's fueling his international
ambition is the fact that 80% of the world has economies that are either similar
or inferior to India. That's the first wave to harvest, but capacity to
service is a problem. If the domestic demand for a VAT-compliant accounting
solution is approximately 4 mn, Tally's ability to service is probably less
than 1 mn. But, they have started ramping up in the last six months. From around
80 employees a while ago, Tally is nearly 350 strong today, and intends to grow
to 2,000 in the next three years. "As a product, we always had the width
and depth to service the large enterprise space. As an organization, we did not
create the width and breath to do that. Technology capability existed in the
past and that is why we have a 50% market share in this segment. The servicing
required for a large customer is different-his knowledge and competency
expectations are different, the solution delivery expectations are different. In
the past, we had not attempted to create an ecosystem internally or with our
partners. That's an exercise we have started now," Goenka says.

In this scheme of things, the VAT compliant Tally 7.2 looks to be a
short-term opportunity aimed at giving the company a headstart in the present
financial year. And if the Rs 10,000 crore dream is to come true in three years
time, the revenue break-up should look something like this: 40-45% turnover from
the small enterprise business; 30-35% from the large enterprise; and 20-25% from
the education business.

Attacking Piracy

Let's, for a moment, forget that Tally has grown substantially over the
last few months. Tally always had tremendous brand equity. Till two years back,
there was never an attempt to leverage this kind of brand equity, which has been
created primarily through the product strength and the strength of the small
number of distributors and resellers. Now, there is a systematic attempt to
really leverage this, as evidenced in its growing fleet of employees and
resellers.

"In the past, we had not attempted to create an ecosystem internally or with our partners. That's an exercise we have started now” Bharat Goenka, MD, Tally Solutions

"Six months ago, JL Infomatrix had more people than Tally-we were
about 150 strong, Tally had 80 people. Today, they have more employees than us.
And they are recruiting top talent," says D Kalyanaraman, managing director
of JL, a Tally partner. "The 10,000-crore dream is definitely visionary
thinking but entirely possible." If Tally is a Rs 300-crore company this
year, it is partly due to VAT. "To take advantage of VAT, you need to have
the infrastructure in place, which they have now. I don't know if they will
grow 10 times by the next year, but they will definitely go for it. They may end
up growing eight or even twelve times," he opines.

This brings us to the important question of piracy. Almost everyone in the
accounting software industry knows that simply by converting the pirated
numbers, a tenfold Tally growth can be fuelled. A major realization for the
company here was in the theory of the power of affordability and the power of
availability. "Over the last three months, we have engaged with the
reseller community and now we have 25,000 resellers across India. Our job is
also to create the demand and generate the need for this current version
software so that their cost of selling is going to be negligible," says
Bharath Gopalakrishnan, president, Tally Solutions.

With prices of the single user version down to just Rs 6,300, there is a
compelling reason to buy the genuine version.

Goutam Das