He further said, the main reason for going for capital reduction is because they don't want retain the extra cash that they got after selling their assets. They don’t want the management to deal with the pressure of holding shareholders' money.
After the capital reduction, the comapny will be again in a start-up mode and is likley to do an earnings per share of Rs 1-2 per share going forward, said Reddy.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: Take us through this capital reduction scheme, why are you doing that and secondly what is the timeline for this?
A: The timeline for capital reduction scheme through the court procedure usually takes about six months. The reason we are doing this is because we were basically a product company; our business model depends on investing in R&D, building products upfront and then going into the market to do our business.
So, this time we had this windfall profits by selling most of our assets which is the products that were built for the logistics and supply chain domain. Now from all of the money that we got we don't need more than about Rs 25-30 crore for the balance of the business that we have, and for the business that we propose to do going forward, which is be in the same domain that is products and R&D etc.
That is the reason why we are doing the capital reduction scheme, we don't want to just retain the extra cash and then the management has to deal with the pressure of shareholder money on them and not producing adequate returns. Moreover, for this the new businesses that we do, we are retaining enough cash.
Q: Is this windfall gain a one time or in general has the business environment for the company improved so much that we will see higher revenue growth rates as well as cash flow generation? Could you tell us what the growth rates will now look like?
A: When I said windfall profit it is not just profit from operating business - it is a business transfer agreement over 90-95 percent of our actual business which has been sold. The business that we have retained is along the media and entertainment domain and we have retained the frameworks. Those are still in the development stage; some are maybe 50 percent complete and are not yielding any revenue yet.
From the new businesses, I expect to see revenue only in the next financial year and not from the rest of this financial year.
Q: Is the company looking to venture into something else?
A: Yes that is exactly what we will be doing; we will be doing four different businesses. One, we will build enterprise applications or what we call ERPs for the media and entertainment vertical. So that product which is underdevelopment is about 50-60 percent already complete.
Second is we will provide value added services mostly in the development and testing because we have built our frameworks for development using spring and hibernate and we have built framework with selenium for testing.
Three, we are building online e-commerce portals, this will be an online retail company but it will have a technology backbone that is quite different and it will be quite unique. It will definitely be different from the online retail and e-commerce companies that you see.
Fourth will be some generic IT services or big data, some of those just to give a kick start to the company and generate some revenues for short-term but that may not be the real core focus or a long-term strategy of the company.
Q: Could you tell me what your earnigns per share (EPS) was on this reduced capital for the year gone by and what should we expect for next year?
A: I would like to give more clarity on the capital reduction plan Because if one looks at the EPS then it is a phenomenal number of Rs 50 or Rs 60 per share and the face value of the share is only Rs 5 but this is not profits made by operations and selling licenses. This is basically one-time revenue by selling the assets of the company or core products, core business of the company and overseas subsidiary.
However going forward the EPS could be Rs 2 or even Rs 1 but one is talking about a company that is almost in a start up mode. So to rephrase this one can call it first innings and second innings wherein we played the first innings with enterprise application in logistic and supply chain domain and now we will be playing the second innings in other two domains which are still in the early stage for the company.