Prithvi Information Solutions is increasing its presence in the offshore business. It expects to improve its profitability in the next two years.

ETIG spoke to Prithvi Information Solutions’ chairperson V Madhavi and CFO PS Shastry on the company’s future initiatives. The company had completed placement of zero coupon FCCB of $50 million in February, which was subscribed to by Lehman Brothers.

The proceeds will be deployed to acquire overseas software boutiques, which have software facilities in India. The company is looking at a deal size of $2-12 million and price-sales ratio of 0.8-1.5. Prithvi is a mid-sized IT services and solutions company and is present in verticals including telecom, BFSI, healthcare and retail.

The company reported a net profit of Rs 53.3 crore on sales of Rs 453 crore in FY06. The company’s margins were much lower in the past, compared to other IT companies of similar size. This was because the company generated as much as 90% of its revenue from onsite activities, which offer lower profitability than offshore services.

Prithvi’s proposed acquisitions are expected to enhance its presence in the offshore software market. On the back of this, the company expects to improve its PAT margin from the current 9.5% to 12% in FY07, with a further improvement of 15% in FY08.

Though margins are expected to expand, the increased focus on offshoring will drag down the topline, since billing rates for offshore are much less than those for onsite work. Typically, onsite services attract a rate of over $55-60 per man hour, while offshore projects deliver $28-30 per man hour. In order to keep the topline growth intact, Prithvi is making an attempt to increase revenue per customer through higher client engagements.

The company earns most of its revenue from the US market. Out of its 75 existing clients, 70 are based in the US. Thus, it is highly susceptible to variations in the US economy. In order to decrease its dependence on the US market, it is taking initiatives to tap opportunities in Europe and the Middle East.

At present, it has submitted proposals for three projects for the Qatar government in the field of telecom and e-governance. If successful, Prithvi will add $15 million to its kitty within a span of 18 months. The decision on this is expected by June.

At present, Prithvi has an order book of $175 million to be executed in next 18 months. It expects to close FY07 with sales of Rs 700 crore and Rs 85 crore in PAT. The company’s revenue for FY08 is expected to grow by over 21% to Rs 850 crore, while PAT is likely to rise by 50% to Rs 127 crore.