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Net4 India - Innovative offerings lead to strong revenue growth

July 15, 2010
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Incorporated in 1999 as a Category A internet service provider (ISP), Net4 India has today diversified to offer services such as internet bandwidth, data centre solutions, enterprise messaging and voice over internet protocol (VOIP). Though a niche player, Net4 has established itself as one of the largest providers of hosted email, web hosting and domain name registration in the Asia-Pacific region. It also has the distinction of being one of the first IS0: 27001 certified network services companies in the world.

When it started operations with dial-up internet services in 2000, the company did not fare too well. With the market for internet services yet to develop fully, it was difficult for companies like Net4 to compete with incumbents like Bharat Sanchar Nigam Limited and Mahanagar Telephone Nigam Limited, which continue to dominate the market even today. Since business expansion was difficult, Net4 decided to shift its focus towards broadband and internet protocol services.

Its decision to launch data centre services in 2001 also met with challenges.Since the Indian market was not mature enough to adopt these services, Net4 had to develop a completely new strategy. It opened six mid-sized data centres across different metro cities instead of adopting the international model of starting out with one large centre in a single city. This not only enabled Net4 to attract the midsegment customers that required collocation facilities but also helped the company control its operation costs. It is now one of the leading players in this niche segment and operates seven internet data centres (IDCs) with 15 network points of presence (PoPs) across the country.

Portfolio of services
Net4's data centre services currently contribute around 41 per cent of its total revenues. In April 2002, Net4 India pioneered the VOIP call shop model in the country, offering low-cost international calling through its internet telephony call shops. Currently, it is the leading brand for internet telephony services in India with a market share of over 25 per cent.

The company also ventured into web security services through its offering, Net4Secure. This service enables organisations to become aware of any possible security loopholes in their online content.

Apart from this, the company also offers a range of networking, network integration, and communication services to small and medium enterprises. These services include virtual private networks (VPNs), intranets and extranets. Net4 India also offers solutions like dedicated internet leased lines and integrated services' digital networks that are targeted primarily at large corporate entities. Some of its latest offerings include a pay-as-yougo email hosting service and Microsoft hosted dynamics CRM 4.0.

Recent developments
Net4 India has recently obtained a letter of intent from the government for providing national and international long distance services. The company is now planning to explore this high-growth segment and has targeted a capex of Rs 600 million for the next three years. This amount will also help the company foray into the field of MPLS-based VPN services and international private leased circuits that provide a single access point for geographically dispersed companies.

Another major development for the company had been in 2008, when its Singapore-based subsidiary received a service-based operator licence that granted it complete rights to offer VOIP services.The company is now planning to establish a PoP at Singapore to leverage multiple cable systems such as network i2i and SEME-WE 4 to enhance its presence in key international markets in the field of VOIP-related services.

Financial performance
The company has posted an impressive financial performance for the year ended March 31, 2010, with consolidated revenues at Rs 1.95 billion, an increase of 21 per cent from the Rs 1.63 billion in 200809. Its profits after tax also witnessed a growth of 36.9 per cent from Rs 84 million in 2008-09 to Rs 115 million in 200910. This has been its highest ever quarterly and annual result.

Meanwhile, to further this growth and undertake large-scale expansion, in May 2010, Net4 announced its plans to raise Rs 80.46 million by issuing preference shares at Rs 87.76 per share to the Granite Hills India Opportunity Fund. This divestment of about 4.2 per cent stake is the second instance of investment by a private equity firm in the company. In December 2009, the company had raised around Rs 150 million by allocating 1,697,812 equity shares on a preferential basis to Madison India Capital, amounting to a divestment of 9.2 per cent stake.

Net4 India, which received a direct listing on the Bombay Stock Exchange in 2007 on account of its presence in the Delhi Stock Exchange, is now planning to list its shares on the National Stock Exchange (NSE). "An NSE listing will increase participation in the company's shares and increase liquidity, thereby enhancing sharEholder value," says Jasjit Sawhney, CEO, Net4 India. According to industry experts, NSE accounts for nearly 90 per cent of the overall stock market turnover in the country. Net4's increased participation will, therefore, go a long way in furthering the company's financial position.

Future outlook

The company is now planning to add IP/MPLS VPN services to its product portfolio. It is also in the process of setting up a 30,000 square foot data centre at Chennai, for which it will undertake investments worth Rs 200 million.

Going forward, the company has laid out ambitious plans for the future. However, the extent to which they will materialise is something only time will tell.

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