CMC Expects Orders from Private Sector, Abroad

www.wsj.com

Published on Fri, Apr 17, 2009

MUMBAI -- Indian information technology company CMC Ltd. expects orders from overseas markets and the country's private sector to drive its future growth, its chief executive said Thursday.

"We do not have much penetration in overseas markets, so there is growth potential there," R. Ramanan, also CMC's managing director, said.

The company expects synergies with Tata Consultancy Services Ltd. - which holds 51% of CMC - to help it get orders overseas, he told Dow Jones Newswires.

While Tata Consultancy Services, India's largest software exporter, gets most of its revenue from the U.S. and Europe, CMC's clients are mostly state-run companies and agencies in India.

The company - which was run by the government before the Tata group bought a majority stake in 2001 - is expanding operations abroad as margins from government business are lower than offering outsourced services to overseas clients.

Revenue from its U.S. unit grew 15% in dollar terms in the last fiscal year ended March 31 as it continued to get orders despite the economic slowdown. Most Indian software exporters are expected to post a decline in revenue recorded in dollars during that period, when new orders slowed and the rupee fell 21% against the U.S. currency.

Earlier this week, CMC reported a net profit of 1.16 billion rupees on revenue of 9.40 billion rupees for the financial year, when its operating margin rose 2.3 percentage points to 13.4%.

CMC also expects digitalization of data at its potential and existing clients overseas to help drive revenue growth in the near term, Ramanan said.

"The company's focus will remain on improving its profitability for in this financial" year, Mr. Ramanan said.

It expects capital expenditures of 400 million rupees to 600 million rupees in the financial year that started April 1, J. K. Gupta, its chief financial officer, said.

Much of this amount is expected to go into building a new facility in the southern Indian city of Hyderabad, where the company is headquartered.

CMC is exploring opportunities to offer training programs to those looking for employment in the retail, insurance and banking industries, Mr. Ramanan said. "In a downturn environment, people look for alternate vocational training than technology," he added.

It currently offers IT-related training programs.

In the financial year ended March 31, 2008, its revenue from the education and training business was 440 million rupees, with an operating margin of just 8% to 10%, Mr. Ramanan said.

But, "the ability to scale and get business volume in this segment can help improve (the operating) margin of the segment to as much as 20%," he said.