Cranes Software International Ltd Powerful Take-Off
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Annual Report Analysis Cranes Software International Ltd Powerful Take-Off BSE Code 512093 Background Bloomberg Code EDC@IN Cranes Software International Ltd (CSIL) is a scientific and engineering products Face Value Rs 10 and solutions provider. The company promoted by Mr Asif Khader and Mr Mukarram CMP Rs 430 Jan commenced operations in 1991. The company’s software products, both owned Market Cap Rs 4,369mn and distributed, are used by more than 200,000 scientists and engineers globally. It also provides consulting and training of these products. It has a presence in 37 countries Share Holding Pattern with subsidiaries in US, UK, Germany, Singapore and India. The clientele includes GE, Texas Instruments (TI), Intel, Motorola, Phillips, Siemens, Tektronix, Eli Lily, Shareholding Pattern Pfizer, Exxon, Infosys, Wipro, Satyam, Tata Elxsi, etc. It is recognized as No 1 Indian 15% 35% Technology Company by Deloitte Touche Tohmatsu Asia Pacific fast 500 survey. The company is in the process of implementing CMM Level 5 and plans to achieve 33% People CMM (PCMM) and BS7799 certification during the current financial year. 17% Promoters Institutional Investors Business Other Investors General Public • Product Distribution CSIL made its entry into the scientific products with the acquisition of distribution Share Price Chart rights of MATLAB, the world’s leading technical computing software. This product has a current base of 500,000 technical users worldwide. Subsequently, the company entered into new alliances such as dSpace (DSP development tool), nucleus RTOS (Real Time Operating System) software for embedded solutions, WITNESS simulation software, Adventnet infrastructure software for IT and Telecom, etc. In FY04 the company entered into distribution agreement with TI for distribution of its digital signal processing (DSP) software tools in the ASEAN region. It was also appointed as a sole distributor for System Architect, a Popkin software product. • Propriety products The company started its own product business with the acquisition of AISN software’s portfolio of visualisation software products in FY01, which are TableCurve 2D, Table Curve 3D and PeakFit. This range was further extended with the acquisition of SYSTAT range of product in FY03. During the last quarter of FY04, it acquired the Sigma Product Line (SPL) from SPSS Inc for a total sum of US$13mn. The Sigma product range consists of products like SigmaPlot, SigmaStat, and SigmaScan. The company is using its own offshore R&D facilities to create regular updates for its range of products. Since acquiring products, the company has launched upgrades such as SYSTAT Version 10.2 and TableCurve 3D Version 4.0. The company has also launched a Japanese version of SYSTAT 10.2. In the current year, the company has already come out with SYSTAT 11.0 in June and is expected to come out with the next version of SigmaPlot in coming few months. September 07, 2004 1 Annual Report Analysis • Training The company entered training in 1998 and the activity is carried out under the name ‘Cranes Varsity’. This was primarily started to train users on the products distributed by the company. It started off as the authorised training partner for MATLAB. Later the company established a partnership with TI to train users of TI’s tools in India. This is done through TI DSP labs established in engineering colleges across India. It has been addressing the demand for qualified professionals in the areas of DSP, real time embedded systems (RTES) and mathematical modeling and simulation (MMS) from its customers, both domestic and global. Recently, the company has entered into a partnership with IBM to introduce its Rational SEED Program to universities in southern India. • Consulting The company started providing consultancy services under its division ‘Modelware’ in FY00, so as to leverage its long association with global principals. It has created consulting skills in DSP and mathematical modelling and analysis. Modelware has recently entered into an alliance with Lanner Group and Popkin Software with the business modelling and simulation market in mind. The consulting portfolio now includes application development in the CRM, SCM, financial services and embedded solutions space. Global Presence The company has four subsidiaries and one sub-subsidiary. • SYSTAT Software Inc, USA: Incorporated in FY02 to acquire and maintain SYSTAT products. It also covers the ASIN range of products. • SYSTAT Software Asia Pacific Ltd, India. • SYSTAT Software GmbH, Germany: Created in FY04 to run ongoing operations of Sigma product line. • Cranes Software International Pte Ltd, Singapore: Incorporated in FY04 to look after the ASEAN operations. • SYSTAT Software UK Ltd (sub-subsidiary): Created in FY03 to look after the European operations. Apart from these subsidiaries the company’s global presence is embraced by 5 direct offices (sales & marketing) and 33 distributors, taking the total coverage to 37 countries. September 07, 2004 2 Annual Report Analysis R&D initiatives Wireless Applications: The company has leveraged its association with leading technology companies TI, MatheWorks and Tektronix to develop innovative solutions for global wireless technology industry. It has developed IP cores for wireless communication systems and wireless LAN test solutions. Recently, the company was retained by National Instruments, a global leader in virtual implementation, to develop complete wireless LAN test and measurement solutions compatible with their product range. Micro Electro Mechanical Systems (MEMS): The company has been proactive in the field of MEMS research and has established CranesSci MEMS lab in collaboration with Indian Institute of Science (IISc) in FY03. Located at the IISc campus, Bangalore, this initiative has been headed by Dr Rudra Pratap, the Chairman of the company. The lab is focused on developing MEMS based designs for a range of applications. During the year FY04, it developed its first novel design of a MEMS microphone. Fabricated structures based on this design have been created and a patent application has been made. Other designs are in the pipeline and development activity is expected to intensify in the current year. September 07, 2004 3 Annual Report Analysis Balance Sheet Analysis • Exponential revenue growth Revenue Growth 1,200 1,000 800 600 400 Revenue (Rs mn) 200 0 FY02 FY03 FY04 Source: Company Reports, India Infoline Research The total revenues of the company have increased from Rs232mn in FY02 to Rs1137mn in FY04 representing a CAGR of 122%. The healthy growth in revenues in FY03 can be attributed to pick up in volumes due to acquisition of scientific software product SYSTAT from SPSS Inc and Tablecurve 2D, Tablecurve 3D and Peakfit from AISN Software during the year. The growth momentum was further carried forward in FY04 with SYSTAT 10.2 picking up and the company coming out with other upgraded versions like SYSTAT 10.2 (Japanese version) and Tablecurve 3D version 4.0. The revenues in the last quarter of FY04 spurted due to acquisition of Sigma product line from SPSS Inc during the period. • Changing business composition The business composition has undergone a significant change over the last 2 years. The company has successfully made a transition from a distributor of software products in India to owning IPRs and selling its own suite of products in domestic as well as international markets. Period FY02 FY03 FY04 Segments % of Rev EBIT (%) % of Rev EBIT (%) % of Rev EBIT (%) Product 85.5 34.8 96.4 40.8 95.3 38.5 Training 14.5 37.3 3.6 55.9 4.7 44.8 Source: India Infoline Research September 07, 2004 4 Annual Report Analysis The percentage share from the product division, which consist of revenue from propriety products and product alliances, have been increasing over the years. The company has expanded its proprietary product stable in last couple of years by acquiring and developing IPs and upgrading existing IPs at its R&D centre at Bangalore. Apart from it, the company has entered in to new product alliances such as one with Texas Instruments and Popkin software. On the other hand, revenue from training segment has increased marginally from Rs49mn in FY02 to Rs52mn in FY04. Period FY02 FY03 FY04 Segments (Rs mn) Actual % of total Actual % of total Actual % of total Exports 87 37.1 464 76.1 916 80.6 Domestic 148 62.9 146 23.9 220 19.4 Source: Company Reports, India Infoline Research The company’s effort to increase its international presence by incorporating global subsidiaries and marketing & distribution offices has paid off. The increased international presence is reflected in the enhanced share of exports in revenues from 37% in FY02 to 81% in FY04. Export revenues have witnessed a CAGR of 225% over the last two years to reach Rs916mn in FY04. The growth in case of domestic business has been quite modest from Rs148mn in FY02 to Rs220mn in FY04 translating into a CAGR of 21.9%. • Higher margins Margin Movement 90.0 80.0 70.0 60.0 50.0 40.0 Margins (%) 30.0 20.0 10.0 0.0 FY 02 FY 03 FY 04 Gro ss M argin Operating M argins Net Margin Source: India Infoline Research The companies gross margin increased from 68.2% in FY02 to 71.2% in FY04. The margin spurted in the year FY03 to 80% levels on account of higher volumes leading to lower cost in manufacturing own products. The subsequent decrease in FY04 can be attributed to Sigma product line acquisition that led to relatively lower margin in the fourth quarter of the year. The operating margin moved in line with the gross margin. The company has been successful in deriving higher leverage from its staff cost and selling and administrative expense. This led to operating margin of 45.4% in FY04 as compared to 44.2% in FY02. The company earns one of the highest operating margins in the software product industry.