New business is coming to smaller firms like us

Parmod K Bhalla, Managing Director, Blue Star Infotech

Blue Star Infotech (BSI), a global provider of software solutions and consultancy, posted consolidated revenues of Rs 23.69 crore and consolidated net profit of Rs 5.3 crore for the quarter ended June 30, 2003.

As compared to the corresponding quarter of the previous year, revenue and net profit increased by 31 per cent and 21 per cent respectively. The scrip is currently trading at Rs 146 levels, at a P/E of 9x.

Tell us about the company's June quarter performance.

Our June quarter performance has been pretty healthy. We recorded a 31 per cent growth in topline over the corresponding quarter of the previous year while the bottomline growth amounted to 21 per cent.

The revenue growth has not been translated into profit growth due to a variety of reasons.

The most important reason is that during the last six-nine months, we have made substantial investments to strengthen infrastructure and the middle tiers of management.

We have also crossed into the next maturity level of an IT service provider where there is a substantial growth in terms of centralised units on the delivery side and in the marketing support functions.

Can you tell us about your region-wise and segment-wise revenue growth?

As far as region-wise revenues are concerned, North America grew by 36 per cent over the corresponding quarter of the previous year and contributed 57 per cent to revenue, Asia Pacific grew by 87 per cent and contributed 11 per cent, Europe and India contributed 16 per cent each.

As far as segment-wise distribution is concerned, global research and development grew by 71 per cent over the corresponding quarter of the previous year and contributed 28 per cent to revenue.

System integration practice rose by 122 per cent and contributed 19 per cent, business application practice contributed 36 per cent while consulting services practice contributed 8 per cent.

Banking, financial services and insurance (BFSI) amounted to 9 per cent of the revenues.

Can you tell us about your customer base?

Hewlett Packard continues to be our largest customer. However, its share in our revenue has come down to 25 per cent.

We plan to bring it down further to 15 per cent in the next 12 months so as to reduce our dependence on a single big client.

Our number of customers over the last 12 months has almost doubled. Currently we have 28 active customers. More than 50 per cent of them are new customers.

What is the progress on the HP 3000 migration?

A lot of hype has been created around HP 3000 migration. In fact, the revenue growth that we have seen has not come from that particular segment. The share of HP 3000 related business has come down quite a bit.

Now our partnership with HP is based more on technology development and professional services. Having said that, there is an opportunity in HP 3000 migration business, which we expect to be higher as we go forward.

What would you describe as your core strength which helps you keep up with competition?

We have customers who are comfortable doing business with us and who like our style of doing business. When it comes to the technology sector, the range of skill sets that we have is among the best in the industry.

We believe that we can take on the best in the business. I think our ability to deliver complex end-to-end solutions is our greatest strength.

Recently you entered into the BFSI sector. What's the progress on that front?

BFSI is where we have started with a lot of ambition. But BFSI is not a sector which has really delivered the goods for us.

Which industry segments are you targeting?

We are looking at mid-size enterprises. Not the Fortune 100 types. The Fortune 100 companies tend to do business with the top players. We are positioning ourselves as an end-to-end service provider.

We are targeting companies who are looking for architectural services, business process consulting services, information strategy related services, implementation of business intelligence projects, data warehousing projects, etc.

We do not have a very large number of clients, but we have a substantial number of clients in each of these areas. We are targeting only the mid-size companies.

Also we want to see ourselves as having a blend of offshore and onshore solution suppy capabilities. Revenue-wise the break up is 60-40, but deployment- wise its about 80-20.

Is that strategy likely to remain the same going forward?

It is likely to remain the same. These customers are under compulsion, considering the changed economic scenario, to make effective use of the dollars available to them.

At the same time they also look for high-quality solutions which are relatively cheap. There is a definite trend of new business coming towards smaller companies like us.

What is your outlook on the IT industry in general?

If you look at the recruitment scenario, this year has probably seen the worst rampage on the campuses! If this is any indication of the future, the outlook is definitely bright. It is a good indication of business to come.

If we look at the revenues and profit side we are probably looking at 10-15 per cent profitability margins next year. This will be more of a high volume, low profits game going forward, which will be more towards global standards.

Any plans to get into the BPO segment?

In the US markets lots of small-size companies are looking at BPO services. We too have been approached in this regard.

Our strategy going forward is to look for an anchor customer. If we get one anchor customer we will consider getting into the BPO space. But this is all speculative at the moment.

Can you tell us about your development and marketing infrastructure?

Our manpower is equally distributed in Mumbai and Bangalore. We plan to expand our Bangalore facility further. We also have a small centre in Kuala Lumpur.

Our infrastructure in US consists of two parts. One is the marketing outfit and the second is the local consulting unit.

Our approach to the US market is to present ourselves as a local consulting partner. That strategy has paid off so far. We have also strengthened our Europe operations last year.

Are you happy with the company's valuations?

On the valuations front I would like to think that we are in the right club!

What is the future outlook for the company?

We have given a revenue and profit guidance of 20 per cent for FY04 and we would like to stick to that.