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'CAD/CAM unlikely to be a me-too segment'
An early entrant in the IT sector, Rolta India is a niche player providing engineering workstations and network servers, besides interactive solutions for CAD/CAM applications. It has a tie-up with Intergraph Corporation, US - the world leader in CAD/CAM interactive graphics. A subsidiary has been set up in the US to digitise maps, develop software and create a geographical database for customers of Intergraph.Chairman Kamal K Singh spoke to Dhruv Rathi of The Financial Express on the latest developments in the sector and the company's future strategies
Excerpts:
Rolta's second quarter (ended December 2004) numbers reveal a decline in operating margins, but profits are up due to other income. What's behind this?
The increase in other income to the extent of Rs 6 crore is mainly on account of the gains made by the company on the foreign currency loans arising out of sharp appreciation of rupee against the dollar during the quarter.
Operating profit margins has come down mainly on account of change in business mix. The material cost during the quarter has nearly doubled on account of a change in the business mix involving more of hardware, peripherals and high-end software from our global partners as against a sales mix oriented towards services last year.
What is the current focus area for Rolta?
Our focus continues to be in GIS segment and CAD/CAM segment. In India, we are the number one in the GIS segment. We are expanding the scope and range in high-end application in GIS.
For example, we have illustrated our capabilities in high-end areas during the Kargil war, we have provided most accurate information to our army and airforce and pinpointed location for attack on enemy installations. Our army gives credit for high degree of accuracy of our software programmes. There are a number of high-end areas in GIS where we want to focus with increased scope of work.
The second major focus area is CAD / CAM in which we provide complete engineering design with all necessary support and back-up. In this segment, we have entered into a tie-up with Stone & Webster Inc of the US and that will enhance our capabilities to participate in complete project works. This tie-up could enable us to capture as much as 5-7% of large projects value. Till now, we have been able to acquire only a 1-2% share of project works.
What is size of the market segments you operate in and what's your share in it?
The global market size for GIS applications is roughly $2.02 billion and is growing at 9.7% per annum. The domestic market is around Rs 300 crore. For CAD/CAM applications, there are no estimates available on global market size. In GIS segment, our services are mostly being used by utilities companies like state roads department, gas utilities, electric, water department, telecom and defense ministry. We are not in the lower end of this segment, which is restricted to atlas mapping.
In the global market, we are placed among the top three software companies in this segment. Globally, we have taken large strides and we are poised to secure major market share. In the domestic market, we are the number one in GIS and enjoy an 80% market share. In CAD/CAM, we have a strong presence in the global market and we are number one in the domestic market.
What is the nature of competition in your segments?
We do not want to enter areas where there are too many operators. There are many limitations to other verticals, such as restricted growth potential, limited market size, low-end applications and threat of duplication, among others. So in high-end solutions, in the segment and areas where we operate, we do not have much competition.
What is Rolta's growth strategy and what are the prospects for growth in the year ahead?
We are likely to continue with the kind of growth we have delivered in the past two years. We do not see any decline in our market share in future. In fact, with the recent tie-up, we are likely to increase our market share. We have made substantial investment in infrastructure and people and shall continue to do so.
We expect to double our headcount from the present 3,000 in the next two years. The fruits of our past investments have started accruing now and we should post very healthy growth in both topline and bottomline in the current year and the years ahead.
The ISP sector is more competitive now. How are you placed with Rolta Net to face the new challenges?
Rolta Net accounts for a very small share of our total revenues. In fact, we are continuing this service only to support our own operation in two major segments - GIS and CAD/CAM - and we are comfortable with the present subscriber base of around 25,000.
For us, the foray into internet services provides us with a live platform for learning as it gives us a fountain of technology. We are now uniquely placed with respect to our global competition in that we are able to offer e-enabled solutions in domains like plant engineering design and GIS.
While other IT companies were focusing on BFSI sector, Rolta decided to focus on CAD/CAM. What made you choose this segment?
BFSI segment is very crowded with many players trying to grab a share of the pie. IT growth is likely to slow down once it reaches a state of saturation. The CAD/CAM area requires high specialisation and is unlikely to be a me-too segment.
What percentage of your revenue currently comes from governments and PSUs? Do you face a problem of delay in payments?
The Government and PSUs contribute around 60% of our total business. Yes, we have experienced delay in payments, but that is because our business is such that it takes a long time from commencement of work to final delivery of work. Then, the government pays only after checking the operations of our systems.
Tell us about the Smart card initiatives.
Smart card is one new exciting area where we have very advanced systems. There is a large scope in this business, which is mostly related to the security business. Whether it is your office computer or house security. However, the number of competitors in this business are increasing.
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