Clause 49: A money-spinner for infotech firms

IT companies target Indian firms for compliance products, services.

The December 31 deadline for listed companies to comply with Clause 49 of their listing agreement with the Securities & Exchange Board of India has set the ball rolling for information technology firms to tap the market created by the need for compliance.

A compliance solution is a tool that helps companies accede to mandatory guidelines of various regulatory Acts. It allows an organisation to define, monitor and manage its processes and internal controls. It provides reports and documentation facilities, and tools for auditing.

Clause 49 is linked to corporate governance standards, board composition, management disclosures of material risks and certification of internal controls. This has triggered a sales point for IT companies in the area of compliance to target Indian entities with their products and services.

For instance, Delhi-based Newgen Software Technologies Ltd, which is into business process management, document management and imaging space, has introduced Newgen Compliance Manager that "enables mapping of organisational controls and has in-built approval routes to track authorisation".

According to Diwakar Nigam, managing director, Newgen Software Technologies, "Some sections of Clause 49 deal with putting in place elaborate risk management procedures and focus on certification, creation and evaluation of internal control mechanisms. Since these are charted in Newgen Compliance Manager, they will allow CEOs and independent directors to have a top-down view of organisational processes."

The Rs 44-crore company is negotiating with ITC and Maruti Udyog for providing solutions. The company expects to end the year with a turnover of Rs 70 crore.

ISG Novasoft, another player in this field, is also in the process of working with some firms to support Clause 49 compliance.

Krishna Srinivasan, chief executive officer of ISG Novasoft, says, "While there are no published numbers of the Indian market, there are thousands of public companies and several others that are listing to go public. Besides, some others are required by their partners and investors to have visibility with regard to their governance processes. These are all very strong candidates for us.'

The Chennai-based KK Birla group has recently acquired 55 per cent stake in Ireland-based GMACCM Technology Europe Ltd. The rationale behind the acquisition was said to have been the need to provide solutions pertaining to risk management and compliance both in the domestic and international markets. The $14-million company is targeting to end this year with revenue of $20 million.

Incidentally, storage players also consider Clause 49 as a good revenue generator for them, though indirectly.

According to Soumitra Agarwal, director (marketing) of Bangalore-based NetApp India, 'Clause 49 will add to NetApp's revenue in India when companies cross the stage of defining and implementing necessary internal control systems and have the requisite IT processes in place to support these systems. Companies will then start exploring infrastructure solutions that enable storage and retrieval of compliance-related data.'

However, breaking into the Indian market may be difficult for these companies as, according to Nigam, 'big companies tend to be more tech-savvy than the small ones'. The company is therefore primarily eyeing big-ticket deals and is hoping for small ones to follow later.