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Updated: Zylog Plans Acquisitions; Shifts Wi5 Focus To Towns

(By Preethi J & Diwaskar Chettri)

Update (February 1, 2010): Zylog has acquired Brainhunter, a Canadian staffing services company, for Canadian Dollar 35 million. “The target caters to Government departments, BFSI, Telecom which are the key focus segments for Zylog.  Hence, there is high potential for cross-sell,” said Zylog’s Chairman and CEO, Sudarshan Venkatraman.

Earlier (January 6, 2010): NSE/BSE listed Zylog Systems India, a subsidiary of US-based Zylog Systems, announced through a BSE filing that it is considering the acquisition of a Canadian company. The Board of Directors is to meet on 9th January to discuss the acquisition. The company in question is in the banking domain but details of the size of the deal are not available due to a non-disclosure agreement, Zylog’s CFO Srihari S.P. told MediaNama, adding that the acquisition will be completed by January 25, 2010.

This is the fifth acquisition by Zylog in recent times:

  • 2007: Acquired for $3.8 million UK-based Anodas Software, an insurance and telecom product firm with revenues of $3 million.
  • September, 2008: Dubai-based Ducont, a mobile and wireless banking service provider with four Dubai cellular operators as clients including Emirates.
  • 2009: The final procedures concerning the acquisition of two more firms last year – one based in Singapore and another in US – are expected this week.

Wi5 Roll Outs Slow Down In Chennai, Focus Shifts To Rural, ARPU Higher By 25%?

In June,  Zylog began roll outs of its wireless broadband services Wi5 in Chennai. Zylog has a category A internet service provider license and can operate in all of India’s DoT circles. Though it started off in Chennai, the roll outs of Wi5 have shifted to towns in Tamil Nadu, primarily to take advantage of the demand, fewer infrastructure requirements and lack of competition. But this move, while being painless and fast, has also reaped an unexpected benefit for the company – rural ARPUs are 20-25% higher than that from users in the city, claims Srihari. He was unwilling to share the exact ARPU. A list of town and locations within Chennai where Wi5 is available is here and a map here.

“WiFi rollouts have slowed a bit in Chennai as it requires a lot of nodes – we need 24 nodes per square km in a city, but just 3 nodes in a town. The difference is that in a city, mobility is demanded but this is not so in a town,” said Srihari. In towns, the absence of wireless broadband players also makes it easier for Zylog to gain a monopoly. When asked Srihari said that density of people accessing compared to metros is not one of the reasons but the fact is that r esidents do not ask for true mobility – no sitting in a bus and downloading mails – that the metro citizen demands.

So Zylog has shifted its focus to the hinterlands and now covers 22 towns, plans 100 towns by March.  After Tamil Nadu, the company will roll out its networks, retaining the focus on covering rural areas first and then cities, to Andhra Pradesh and Karnataka in the next 6 months. Of the Rs. 2 billion it planned to invest over 4-5 year period, the company has utilised Rs. 0.45 billion till date.

E-governance Projects Surge

Currently, Zylog has two live smart card projects at Karnataka and Gujarat. The 5-year Karnataka project involved 55 RTOs and 15 checkposts, digitising licences and RC books. Srihari estimates that the project has a potential to earn Rs. 1.6 billion, since consumers pay Zylog directly for the service. A similar project in Gujarat has been done at a smaller scale – only for licences. When asked if Zylog will have to rejig the entire project once UID comes into place, Srihari said the computerisation of records and creation of databases would help the government in realising the UID project.

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Africa, Asia

“The next growth story is in Africa. People have started investing there and there is potential for our banking, WiFi and smart card services. We have not yet begun, but plans are on,” said Srihari. Zylog Systems has partnered with blue chip firm IBM and Canonical Ubuntu to bring low-cost computers named ‘PowerCubes’.  These desktops will be sold in India, Brazil and South Africa. Potential for Wi5 is strong in Asian countries, but the company will first focus on India before launching it elsewhere. Zylog will also look at WiFi rollouts in Europe and Middle East in the future.

Financials; Contribution To Revenues

The company had reported a net profit of Rs 209.15 million for the quarter ending September 2009 as compared to Rs 264.89 million for the same quarter of the previous year. Total revenues were at Rs 19,095.79 million.

Banking form 28-30 percent of the company’s revenues, telecom next at 26% but e-governance projects are expected to become substantial contributors next year as they go live this year. They will contribute 10-15% to revenues. Wi5 services currently form 8-9% of Zylog’s overall revenues and this is expected to grow to 25% in three years. The company also has offerings for the retail, pharma and manufacturing industries.

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