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PSI Data Systems is credited for undergoing a brilliant transformation from a sluggish hardware company to a smart solutions provider. The company has an inherent domain expertise in banking and financial services and enterprise application integration. Of late, PSI has interested many investors in the stock market. The stock has hit 16% upper circuit thrice in a row and volumes have shot up from 48996 to 262990 shares in the last three trading days. The stock price soared by 67% from its 52-week low of Rs87. So what is it about the company?

News of stake sale

PSI is a subsidiary of Groupe Bull of France, which holds 51% equity in the company. Recently, Groupe Bull, has decided to offload its stake (either partly or wholly) in the company, to overcome its own financial difficulties.

Any prospective suitor acquiring more than 15% of stake will have to come out with an open offer to acquire at least another 20% in the company. This piece of news has been enough for investors to take a closer look at the stock. However, the sustainability of the rally would depend on how soon the divestment process gets underway and the interest shown by prospective suitors.

Financials

During CY00, PSI registered a 74% growth in net profits to Rs182mn on a turnover of Rs849mn (up 53%). The ROCE stood at 61% which is one of the highest in the industry. However, during Q1CY01, the company’s revenues grew by 15% and net profit declined by 46% to Rs21.6mn. This is mainly due to the slowdown in the US market, the sale of ATM business in the previous year and delays in some orders that will be reflected in Q2.

Besides this, investment in infrastructure and manpower has put pressure on margins. The company has set up a new office in Japan, established new software development centre in Bangalore and Delhi and has increased its manpower from 436 to 598 employees in CY00. It plans to add another 150 this year. The company has also added to its sales force in Europe and US.

The company expects that some significant orders, result of commercial investment made in Europe, Japan and US will flow in the next few months and support the expected growth for CY01.

Offshore business

The company has a fairly large offshore software development business. During CY00, it earned around 58% of revenues from on-site services and 42% from offshore services.

During CY00, 35 new clients were added (19 in US, 4 in Europe and 12 in India). This does not include clients added via Bull and other partners.

Table1: Region-wise revenue breakup (CY00).

Country	Revenue (%)
Europe	47%
US	30%
India	23%

Source: Company

Table 2: Technology-wise revenue breakup (CY00)

Technology	Revenue (%)
Internet/Java	55%
Oracle/Data-Warehousing	15%
Forte/Mission Critical	15%
Others	15%

Source: Company

Sheds off unwanted business

In its attempt to be a complete solutions provider, the company exited the hardware business last year by transferring its ATM business to Diebold HMA Pvt. Ltd.

Plans new forays

The company is planning to add newer lines of business of insurance and enterprise relationship management (ERM).

Tie ups and other initiatives

PSI has recently tied up with a German consulting company, IT Consult AG, to provide back-end technical support including software development to the latter’s clientele. With this, the company will consolidate its presence in Europe.

Besides strengthening its marketing team in Europe and US, the company has opened up an office in Japan to address the growing Asian Pacific market. It is also spreading its sales reach to SAARC nations, the Middle East and Singapore.

The stock is trading at a P-E of 11x its annualized earnings per share. Considering the profitability of Indian software companies, this can be considered low against a P E of around 20 enjoyed by major software companies. The suggestion of stake sale has stirred interest in the stock. Any further development in the divestment process will add to the rise.