Point Blank : Nucleus Software Exports on its recent performance
Nucleus Software Exports, the Delhi-based banking products and software solutions provider, has been rated by Nasscom as one of the 'top five' fastest growing products companies in India. Despite tough market conditions, the company's topline has grown steadily over the past couple of years. This fiscal, consolidated revenues continued to grow at a healthy 48 per cent to Rs 65.86 crore for the first nine-month period ended December 2002. But with severe pressure on margins, the company's bottomline has not kept pace with this growth in revenues. In fact, net profits slumped by 41.8 per cent from Rs 9.39 crore to Rs 5.40 crore this fiscal. Vishnu Dussad, managing director, Nucleus Software Exports, spoke about the company's recent performance.
What are the reasons for the steep decline in operating margins?
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Our margins have declined from around 29 per cent to 16 per cent on account of two main reasons. First, we continue to aggressively invest in the development of new products, and the creation of intellectual property rights (IPRs) for the company. Moreover, we follow a conservative accounting norm of quickly expensing development costs. We have recently set up subsidiaries in Australia and Hongkong which have added to the overall costs. Such initiatives are necessary for sustained growth in future.
Another important reason is the 161 per cent jump in travelling costs to Rs 11.71 crore in the first nine-month period ended December 2002. Travelling costs have shot up as the company is looking at penetrating newer markets like Philippines, the Middle East and other south east Asian countries.
Is the company taking steps to perk up its operating margins which seem to be much below industry standards?
Over the past few quarters, we have significantly strengthened our marketing infrastructure and address almost all the important markets worldwide now.
The benefits of these investments will be visible in the company's financial performance in the coming quarters. This apart, the expected increase in contribution from the products division will also enhance our margins.
We are also making efforts to curtail costs. If you notice, on a sequential basis, total expenditure has declined from Rs 19.23 crore in the second quarter to Rs 18.74 crore in the last quarter.
But can a relatively small company like Nucleus absorb such a huge marketing expenditure? Are you not looking at marketing tie-ups to boost sales?
We feel it is important to have a local presence to penetrate any important market. These investments are necessary for sustained growth. We are also looking at developing other channels like distributors and marketing tie-ups with larger players. For instance, we have entered into an agreement with Siemens-Fijitsu to market our products in Germany and some other countries in Europe. Our products will be available on the Siemens-Fujitsu platform and we expect to develop a formidable reach for our products through their global sales force and offices in Europe.
What is the projected turnover for this fiscal?
We expect to end the year with a consolidated topline of about Rs 90 crore. Any orders acquired within the next couple of months will only add to the company turnover.