Aptech is in midst of acquisitions, strategic investments, partnerships and launching fresh courses. The company is increasing its focus more and more on the Internet segment. This is dual impact. Its not only expands the education & training and software business using the net, but also throws fresh opportunities thrown up by the proliferation of Internet. Looking at these acquisition, with e-business initiative and the global software business, the scrip is a good long term bet at the current market price of Rs 740 ex-bonus.
Education & Training
The education business of the company, reorganised into six separate divisions in 1999, continues to post decent growth. In 1999 the division returned a revenue of Rs 313 crore, a growth of about 24 per cent. In the first quarter of current fiscal the performance was even better with revenues of Rs 50 crore against
Rs 38.85 crore in corresponding quarter last year, a growth of 28.7 per cent. The division has made good progress in both retail and corporate segments with its three training brands Aptech Computer Education, Asset International and Arena Multimedia. While Aptech Computer Education offers software engineering, Asset International and Arena Multimedia offer professional & certified training for corporates multimedia technologies respectively. The division has also seized on the emerging opportunities by recently offering Aptech Certified e-commerce Professional course for e-commerce applications.
The company has also entered into a tie-up with Saba, a market leader in e-Learning, to provide e-learning solutions to corporates worldwide. Similarly, Arena Multimedia has also tied up with Macromedia, a solution provider for web based applications, to provide training over web based applications. And to make these programs affordable, Aptech has roped in GE Countrywide Consumer Financial Services to offer zero percent interest loan to students. This division, with its network of over 1500 training centres, would continue to post strong growth in future.
Software & Consulting
The increased importance of software & consulting services is reflected in increasing contribution of software solutions in total revenue of the company. This share has gone up from about nine percent for year ended December 1998 to 14.6 per cent in December 1999. And if we take into consideration the global subsidiaries of the company then the share of revenues from software solutions for December 1999 was 18.6 per cent as against 10 per cent in previous year. In the first quarter of current fiscal the company has bettered the performance of last year with this share going up to 31.2 per cent for Aptech alone and to 39.8 per cent including the business of all its global subsidiaries.
The gains in software business are accruing from gradual value addition. The company has evolved form a general code writing, almost at the beginning of the value chain, to specialised software solutions and products in the areas of e-business, business intelligence, ERP and Extended ERP including Supply Chain Management (SCM) and Customer Relationship Management (CRM), GroupWare and Knowledge Management. The division has made significant gains in the areas of customer portals and enterprise knowledge portals for medium and large firms and also B2C and B2B portals for dot com companies. The division is expected to return steady growth in coming years.
Leveraging Internet
Having established a firm hold on the ground, Aptech has now chalked a strategy to leverage the Internet to give a further boost to its education training and software business. The education division has launched a comprehensive educational portal onlinevarsity.com. This online division would create and deliver online contents. The division already has more than 10,000 students taking courses currently online. To further add value the portal has entered into a partnership with Jobstreet.com to enable students to access global placement opportunities.
Aptech has also setup a subsidiary BconnectB which would spearhead the Internet foray of Aptech. The first project of the new venture is BconnectB.com, Asia's first comprehensive Application Service Provider (ASP) for manufacturing industry providing range of leading edge software solutions on a hosted pay-per-use basis.
The applications provided include Aptech's E Link Solution for Value Chain Collaboration between an organisation and its suppliers and distributors. The company would also deploy Aptech's Ontological Knowledge Management Engine as customer service application to enable building of institutional memory through customer responses which can then be fed back into product design and customer service functions. This ASP is already being used by some of the early adopters in the automotive and electrical industries. The company plans to build such economic networks `EcoNets' for different industries.
The overall thrust of new initiatives is to position Aptech as a full service provider of E-Architect solutions. Towards this end BconnectB has also recently announced an alliance with Qimpro, an Asian leader in process and quality consulting. This alliance provides a web-based service for clients of BconnectB ASP portal to evaluate an enhance the e-readiness of their processes and quality systems. The company hopes to derive significant revenue from usage and subscription fee of Onlinevarsity and BconnectB.
BconnectB has also been on a acquisition spree to spread its wings into new software sectors and new geographical customers. It has taken a 80 per cent equity ISearchCentre.com which provides search to corporates looking to tap Indian talent for providing IT-enabled services. Also, it has recently concluded a deal to take 80 per cent equity in Wisdor, a company providing knowledge management service.
Financials
The company has posted impressive results for the first quarter of fiscal beginning January 2000. In this quarter the total revenue of the company increased by 43.4 per cent to Rs 72.7 crore from Rs 50.7 crore last year. The strong growth enabled the company to report a positive bottomline with a net profit of Rs 2.01 crore as against a net loss of Rs 6.4 crore in corresponding fiscal of 1999. The increase in profit can also be attributed to sharp fall in interest cost from Rs 2.97 crore to Rs 25 lakh. Aptech has already rewarded its shareholders with a 1:1 bonus earlier this year. The company also posted a healthy operating margin of 14.3 per cent in this quarter against a negative margin of 2.3 per cent in corresponding quarter of 1999.
The turnaround in first quarter is mainly due to larger contribution of software revenues. Software revenues not only have a better margin but also make up for the seasonal nature of educational business. First quarter of a calendar year is usually slack for educational companies as students are busy with their annual examinations. The demand picks up once the summer vacations begin and usually peaks in third quarter of a calendar year. With increasing diversification in product basket of the company this skewed pattern in revenues and bottomline would get evened out in coming years.
Looking ahead
The education & training business of the company is on a sound base and the software business seems to have taken off. This alone is sufficient to sustain growth in near future. It is the Internet initiative of the company that would propel it into a different league. In fact, Aptech has set itself a target of Rs 100 crore in current fiscal through its e-business initiatives only. The results could be better if the company succeeds in acquiring a US-based company. It has earmarked a sum of $ 25 million for acquisitions. Another aspect to consider is that the company is conducting most of its global software business thorough its subsidiaries. In absence of consolidation of accounts in India it the same is not reflected in the performance of Aptech.
The Aptech scrip went ex-bonus from April 26, 2000 on NSE and from May 2, 2000 on NSE and closed at Rs 740 on Friday last. Considering the acquisition strategy, e-business initiative and the global software business it is a good long term bet.
