Shake-up on the anvil?

DQW Bureau
New Update


While the SSI-Aptech merger is being touted as the biggest

coup in the Indian IT education market, will the Rs 40-crore deal really shake

up the sector?

Though nothing is yet official about the Chennai-based SSI

plans to acquire majority stakes in Aptech Training, the country's leading

financial dailies have already made the basic details public. There isn't enough

reason not to believe them either; from the initial strong denials made by

Aptech's Pramod Khera, the responses have gone weaker by the day. While SSI's

general manager for corporate communication initially rubbished the news as

"purely market rumors", he went on to add that, "At this point of

time we are not in a position to disclose any further details". Similarly,

after the initial expression of unawareness about any such developments, to

denial of any such move, the Aptech corporate communications team finally said

that, "announcements, if any would be made at an appropriate time".

The Deal

Touted as the biggest coup in the Indian IT education market in the recent

times, the deal-if it comes through-will help the Chennai-based software and

training company SSI to acquire majority stakes in the Atul Nishar-promoted

Mumbai-based Aptech Training. According to the information available till the

filing of the report, SSI is likely to acquire 27.74 percent stake held by

Nishar in Aptech. Also, rather than a stock swap method, most common in such

deals, the two companies have agreed to an all-cash deal as the Aptech's

promoter wants to completely get out of the IT training business.


Beside paying around Rs 24.46 crore for 49,85,967 shares

held by Nishar, SSI would also have to make an open offer to acquire additional

20 percent stakes in Aptech as per the Securities and Exchange Board of India's

(SEBI) guidelines for takeovers. Given the current price trends of Aptech's

share price on Bombay Stock Exchange (BSE), SSI would also have to shell out an

additional Rs 16 crore as payout for the same. Strangely, while Kalpathi S

Suresh, chairman and CEO, SSI had suggested in 2002 that the company was

actively considering getting out of the IT training business as the Indian IT

industry has overcome the manpower crunch thereby making the business

unattractive, Aptech, throughout the troubled times, had been talking

positively. So what triggered the change of hearts?

Who gains what?

Notwithstanding the non-committal answer from both the companies, the

expected Rs 40.46 crore acquisition does makes sense for both the companies.

According to market observers, Nishar has been trying to get out of the training

business for quite sometime now and focus entirely on the software services

business. Not to forget that Aptech's software services business was demerged

from the training division in December 2001 and merged with another Nishar-promoted

company Hexaware Technologies. The training division was later registered as a

separate company and listed as Aptech Training.

A set of analysts believe that SSI's main reason to buy

Aptech can be its attractive global business proposition and given Suresh's view

on the domestic IT training market, it does not seem too far fetched either.

Consider this: Aptech's revenues from overseas operations jumped from Rs 12.12

crore in OND 2001 to Rs 46.08 crore in AMJ 2002 and 49.15 crore in JAS 2002-from

16.16 percent to 53.17 percent and 54.35 percent respectively. On the other

hand, Aptech has lost shine in the domestic segment-from Rs 83.83 crore in OND

2001 to Rs 45.64 crore in JAS 2002, thereby validating Suresh's comments on the

domestic market.


Reports also suggest that the merger might give a new lease

of life to SSI as its revenues have taken a severe blow in fiscal 2001-2002,

which it ended with Rs 328 crore, a fall of 23 percent compared to the previous

year (2000-01), which saw growth rate soaring to 168 percent. Meanwhile the

company's education revenues stood at Rs 21 crore in Q1 (JAS), 2002-03. While Q2

results are not yet out, but sources say that the worst is over and IT training

industry as a whole is on a consolidation phase. For instance, the company still

has around 750 centers and enrollments have actually increased to 32,806 in Q1

2002-03 compared to 32,753 the previous quarter. With revenues and enrolments

stabilizing after steep decline, the merger with Aptech would help SSI to

further consolidate itself.

Sources also suggest that after the takeover SSI is likely

to retain both the brands and leverage from their core strength. While SSI is

considered a top brand in the short-term emerging technology courses segment,

Aptech is a more powerful brand in long-term courses. This brings a natural

synergy with the former being a major player in courses related to emerging

technologies such as networking, e-business, client-server technologies and

bio-informatics, while the latter enjoying a significant share in the market for

long-term courses. SSI would also benefit from Aptech's footprints across the

world-2199 centers in India and 250 centers across the globe. The company also

operates on a bi-pronged strategy-one caters to the IT education and training

segment the other focused on multimedia. For the financial year ended 2002, the

company garnered 85 percent revenues from IT training and 15 percent from its

multimedia training. The possible synergy in terms of delivery and reach of the

combined entity is also expected to be huge and the IT education market, which

is triangular at present with NIIT on top followed by Aptech and SSI, will

become bi-polar.

But there are more thorns than roses as it might appear

from just a simple revenue-to-revenue comparison of the merged entity and NIIT.

While the deal might bring the combined strength of the two much closer to

NIIT's 27 percent market share-between SSI and Aptech the market share is likely

to be in the range of 27 percent squaring it off with NIIT in the Rs 1,600-crore

industry-a quick look at the quarter-to-quarter growth of the three companies

throws an all together different picture. While the #1 player, NIIT, has been

registering constant revenue growth-from Rs 74 crore in OND 2002 to Rs 81 crore

in JFM 2002, Rs 92 crore in AMJ 2002 and Rs 121 crore in JAS 2002-the #2 and #3

players have posted flat growth. In fact, SSI suffered a 32 percent negative

growth in JFM 2002-from Rs 31 crore in OND 2001 to Rs 21 crore and has just

managed to retain those figures in the next two quarters. Similarly, after

registering 11 percent growth in JFM 2002-from Rs 75 crore the previous quarter

to Rs 83 crore-the company has only marginally grown in the next two quarters-by

5 percent and 3 percent respectively. While one may also like to believe that

the new entity might be able to overcome these hurdle to emerge a lean and mean

machine, given the size of the joint company the transition may stretch to over

six months. And this period of uncertainties can actually see the SSI-Aptech

combine lose more market share than what they can gain-reversing which would be

another arduous task that Suresh & Co would have to manage.

Shubhendu Parth & G Shrikanth