CREDIT PROFILE AND

CREDIT MIGRATION

OF THE SOFTWARE

INDUSTRY IN INDIA

Shreya Mathur

Semester V (2014)

BBA- LLB

National Law University, Jodhpur

SOFTWARE COMPANIES IN INDIA

SOFTWARE COMPANIES IN INDIA

Over the past few years, the revenue and earning of the IT sector firms have been adversely affected through the global recession and had considerably slowed down the pace of IT firms in India

WHAT IS CREDIT PROFILE?

A credit profile is used by lenders and landlords to determine an individual's creditworthiness. Credit profiles are available for individuals, businesses, conglomerates and even countries.

An assessment of the credit worthiness of a borrower in general terms or with respect to a particular debt or financial obligation. A credit rating can be assigned to any entity that seeks to borrow money – an individual, corporation, state or provincial authority, or sovereign government. 

CREDIT RATING AGENCIES

A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely interest payments and the likelihood of default.

It reflects its current opinion on the relative likelihood of timely payment of interest and principal on the rated obligation. It is an unbiased, objective, and independent opinion as to the issuer's capacity to meet its financial obligations.

RATING CRITERIA FOR THE SOFTWARE

INDUSTRY

RATING CRITERIA FOR THE SOFTWARE INDUSTRY

1. BUSINESS RISK ANALYSIS / MARKET POSITION

Scale of Operations

The larger the scale, the greater the economy of scale, and the ability to withstand profitability pressures.

Business Model

Soundness and efficiency of the model of corporate governance.

Geographical diversity

Geographical diversity mitigates business risks, however in times of slowdown, geographical concentration may amount to losing key markets and difficulty in VISA availability for software developers.

RATING CRITERIA FOR THE SOFTWARE INDUSTRY

1. BUSINESS RISK ANALYSIS / MARKET POSITION

Client Profile

All highly rated software companies have well established client relations leading to repeat business and stability in earning.

Mergers and Acquisition

Acquisitions of US based software companies capitalize existing client relations and acquire domain expertise.

RATING CRITERIA FOR THE SOFTWARE INDUSTRY

2. OPERATIVE EFFICIENCY

Systems and Processes

The extent to which

processes are documented,

Standardized and

Improved continuously.

RATING CRITERIA FOR THE SOFTWARE INDUSTRY

3. FINANCIAL RISK ANALYSIS

Revenues & Profitability

Leverage & Debt Servicing

Refinancing/ restructuring Risk

RATING CRITERIA FOR THE SOFTWARE INDUSTRY

4. MANAGEMENT RISK ANALYSIS

Reputation & experience of the key managerial personnel

Commitment of the managerial staff

CRISIL’s ratings of top IT Companies in India

SUMMARY RATING

RATIONALE

3i INFOTECH

(Formerly known as ICICI Infotech Ltd.) offers packaged products for banking and financial services, including customized software services , offshore support and IT solutions.

Strength- Geographical Diversity, product mix

Weakness- Significant Debt Repayment obligations

Suggestion- Crisil believes it will maintain its business risk profile due to its diverse sources of revenue, and there’s an expected increase in financial risk profile.

The outlook could be revised to “Positive” if it has an increase in profitability.

HCL TECHNOLOGIES LTD.

Offers remote infrastructure development, custom application, research and development, BPO etc.

Strength- Strong risk profile, positive acquisitions in the past,

Weakness- Moderate operating efficiency, volatility in forex rates

Suggestion- Through geographical diversification of revenues and increase in profitability, outlook could shift from Stable to Positive.

iGATE GLOBAL SOLUTONS LTD.

Headquartered in Bengaluru (formerly Mascot Systems Ltd.) it was delisted from the Indian stock exchanges in 2008. Offers services such as data warehousing, application development and BPO.

Strength- Adequate liquidity

Weakness- Below average revenue growth

INFOSYS TECHNOLOGIES LTD.

Offers softwares for the banking industry, application and maintenance, consulting etc.

Strength- strong global competitiveness

Weakness- weak forex rates

Suggestion- The outlook can change to Positive if it retains quality manpower and increases its operative margins.

KPIT CUMMINS INFOSYSTEMS LTD.

Incorporated as KPIT in Bengaluru, it merged with Cummins Ltd in 2004.

Strength- Stable business risk profile

Weakness- Geographical concentration in limited area

Suggestion- With a significant increase in profits and revenues, and a positive debt repayment profile, KPIT could easily change into Positive rating.

MASTEK LTD.

(Formerly Management and and Software Technology Pvt Ltd.), it offers enterprise management, and has multiple offshore departments in foreign countries.

Strength- Healthy Financial Risk Profile

Weakness- High overheads and low revenues

Suggestions- To improve from its negative outlook, downward trend in revenues needs to be revised, otherwise the rating will be further downgraded.

NIIT TECHNOLOGIES

It is a wholly owned subsidy of NTL Ltd formed in 2003.

Strength- Improving risk profile

Weakness- Small size of operations

Suggestions- By maintaining its conservative size of capital and increasing acquisition of new businesses, it can be raised to a Positive outlook.

PATNI COMPUTER SYSTEMS LTD.

Patni is a veteran in the field of software infrastructure, established in 1978 and went public in 2003.

Strength- Strong market position and maintenance of high marketable securities.

Weakness- Fluctuations in forex rates, deteriorating capital structure.

Suggestions- The outlook can be shifted to “Positive” if the business risk profile improves drastically, coupled with better geographical diversification and client retention.

SASKEN COMMUNICATION TECHNOLOGIES LIMITED

The Sasken Group was promoted in 1989 as an Indian company offering equipment manufacturing, and communications software services.

Strength- Market position, financial risk position.

Weakness- Little diversification.

Thank you!