MARKET OVERVIEW: Consumables, DTP Catch Up

When DQCI came out with its first Pune Special issue in May last year, it brought to light the region’s uniqueness in UPS and language software segment. The market was flourishing then and IT market in Pune grew at a rate of 20 to 30 percent during 2000-01.

There was an ambiance of prosperity in the channel community

then. But, things did not turn out to be all that rosy in FY 2001-02. The year

was accentuated by economic slowdown and it did not spare Pune either. However,

its impact was not felt as badly as in the metros.

Also by March 2002, partners started sounding optimistic about

the market conditions. In the meanwhile, Pune was in the headlines when

Mumbai-Pune Expressway was inaugurated. This added to the attraction of the city

as a favored location for the expansion of IT companies. Besides,

infrastructure-related initiatives taken by Maharashtra Industrial Development

Corporation (MIDC) has also given a big boost to the IT industry in Pune.

FACING TOUGH TIMES



Traditionally, IT sales have been quite strong in the defense and educational
segments in Pune. However, in view of the market slowdown, these segments

withheld their IT expenditure adding to the slackness in demand.

"Buyers were in a dilemma as to whether they should go for

branded products or assembled ones. Decision-making became a slow process. As a

result, business suffered," says Vinayak Apte, CEO, Microline.

One good thing in a year that was bad for business was that

there was minimum turnover in manpower. "Microline lost just two people

last financial year. Otherwise, we have been experiencing manpower turnover to

the tune of 20 percent before that," says Vinayak.

According to him, collection cycles got more than doubled.

"If earlier, we used to get payments within a maximum of 42 days, now the

credit period has gone up to 75-80 days. This affected the working capital

management as well as the bottomlines," says he.

The slackness in demand forced the channel community to cut down

on costs. Very little money was spent on advertising or other product

promotions.

Besides, channels became very cautious in dealing with

customers. Assessing the credibility of the party became a priority with

partners.

Even though the growth rate may have declined in the last

fiscal, the business seems to be recovering now. "Things are a lot more

organized lately," says Naam Moryani, Director of Baba Infotech Pvt Ltd.

According to him only the professional players have survived the slowdown.

According to Naam, corporate spending went down during 2001-02.

"But home segment continued to do better," says he.

LOW GROWTH FOR UPS MARKET



The slowdown actually wiped out a major chunk of the unorganized sector in UPS,
but new ones kept coming up. The capital required to start an UPS manufacturing

unit is very little and hence the entry and exit is very easy.

These small-time manufacturers cater to small clients and

operate from their houses. Many of these players acquire the basic know-how by

working under bigger UPS manufacturers. After working for a short period they

start on their own. Thus creating a glut of players in this market.

"The entry of new and inexperienced players have damaged

the business more than the recession," says Pradeep Pimpley of DB Power.

According to him most of these players lack the requisite expertise and are

affecting the business of genuine manufacturers.

"The unorganized UPS makers manage to keep their cost on

the lower side because of low overheads and put pressure on our margins,"

says Pradeep.

However, such sellers alone can not be blamed for this situation

as the buyers are equally responsible. "UPS is a high-tension electrical

device and buyers are making a big mistake by not evaluating the credentials of

the seller and manufacturer with regard to technology," says MP Singh of

Sai Power.

Which means, the organized sector has failed to educate the

buyers about the merits of using their products. However, Singh feels,

"Customers are beginning to understand the importance of using a branded

UPS because of the after-sales support that established vendors provide."

An unorganized UPS maker alleges that the so-called organized

players are the same people who once charged the customer three times the cost

with inferior quality UPSs. "Entry of new players was inevitable as the

margins were huge," Singh adds.

Thanks to an improvement in the power supply in Pune, UPS

manufacturers are now looking beyond Pune to market their UPSs. This has given

some hope to the organized sector since small time UPS makers do not have the

necessary reach.

CONSUMABLE BUSINESS CLIMBS UP



One of the areas in IT business that defied the slowdown and is still doing

better in Pune is the consumables business. Refilling business being a part of

it, seems to have caught up lately with small time traders. The margins are

hefty in this business. The lure of hefty margin has given rise to the formation

of a huge unorganized market in this segment too. "Every Tom, Dick and

Harry is sitting with syringes to refill ink cartridges at 1/10th the original

cartridge’s cost," says Kamlesh Khatod of Bela Computers.

According to him, a refilled ink cartridge works as good as the

original and it can be refilled for up to eight times if done properly and with

the right ink. "The right ink would mean a slightly expensive but high

quality one, which is also used by the original cartridge vendor," says

Kamlesh.

Presently, two types of inks are available in the market: one is

the dye-based ink and the other is pigment-based ink. "Pigment-based inks

are superior to dye-based inks, but in the market you will find refillers using

only dye-based inks since they are dirt-cheap," says BB Somani of Abee

Info-Consumables.

"Local refillers make money by refilling dye-based inks for

Rs 50 to Rs 150, whereas a single pigment-based refill should cost only Rs

100," says Somani.

Abee Info-Consumables is in the process of launching a refill

kit called Easy Fill. According to Somani, these refills are pigment-based and

the product will create tough competition for all other dye-based inks refills

because of its competitive pricing. To support this, Abee is introducing a

scheme called the EVDS (Extra Value Discount Scheme).

Also growing is the cartridge remanufacturing industry. Here,

remanufacturing means cleaning original empty cartridges with chemicals and then

refilling it with ink and selling it as compatible cartridges, which are priced

20 percent lower.

Bela Computers is one such company that is into refilling and

remanufacturing. According to Kamlesh of Bela, this industry is doing well and

will continue to do well because of its recurring business nature. He is now

toying with the idea of renting such cartridges with a brand name.

DTP IS HOT



In the SME segment, some have started DTP business with a difference. Affordable
imaging and printing solutions from the stables of HP, Epson, Canon, etc, have

made this possible. Pune is witnessing a boom in the DTP business when it comes

to large format printing. Quite a few DTP houses have begun to provide large

format printouts in this region.

The main source of business for these DTP outlets are from the

advertising agencies and cinema halls that put up large posters. The returns are

high in this business, probably because it still is in a growing stage.

SCATTERED BUSINESS



According to traders, there are around 1,500 resellers in Pune. But if you go
out looking for them, you will not find them in one place like the Lamington

Road in Mumbai or the Nehru Place in Delhi or the Ritchie Street in Chennai.

Partners are all scattered across the length and breadth of Pune and its

outskirts.

RETAILING: YET TO CATCH UP



If an end-user decides to buy a computer and goes out in the market searching
for a retail outlet, he is wasting his time. Pune lacks when it comes to retail

IT outlets. Though some vendors like Compaq, Wipro and Canon have made their

presence felt through retail outlets at Saras Baug, Tilak Road and MG Road, Pune

is yet to witness a prominent retail culture as far as IT is concerned.

However there are signs that some local companies in Pune are

also planning to go retail with their own brands. One such company is Microline.

"In the coming years, retail will surely catch up. We have plans to enter

into retail in a big way. Already we have a small outlet, which we want to

expand further," says Vinayak Apte, CEO, Microline.

Baba Infotech, which started its retail initiative in 1997 has

four retail outlets. It is now planning to add three more by the next quarter.

Despite the poor retail scene, Pune reported the highest PC

penetration a couple of years ago according to IDC. And, it was the assemblers

who captured 71 per cent of it. The survey stated that education was the major

driving force for people to buy PCs.

SURVIVING ON SERVICING



All those who failed to make money by just pushing boxes had to look at support
and services to survive the tough times. Moryani of Baba Infotech says,

"Only companies with a strong service base can survive now."

Sunil Gugale of United Peripherals, the biggest dealer for

Wipro products in Pune, could survive the slowdown because of his support

infrastructure. According to him, vendors have realized this and they are

improving their support which is helping them do better business. "Wipro’s

‘Touch and Feel’ offer is an excellent strategy to win customer

confidence," he adds. The ‘Touch and Feel’ offer allows the reseller to

buy the first piece of UPS at a heavily discounted price which very few can

match.

LOCAL SOFTWARE TIE-UPS

Cache Technologies tied-up with Novell in October last year

which helped it in network integration projects. According to Cache’s MD,

Suresh Joshi, Novell’s Directory Services and ZenWork products have found

demand in the market.

RR Joshi, Jt MD, Modular Infotech says, "Our tie-up with

TVSE has helped us to provide value-addition in the banking sector. For

instance, we have developed a banking software in Hindi."

Presently, Modular is putting in efforts to deliver

regionally flavored software packages which would carry information about

products in regional languages. "We have already done this job in Marathi,

Hindi and Malayalam. The next target is Kannada and Tamil," Joshi adds.

Innovative products from the stables of language software

companies have helped maintain a steady growth even in bad times. Modular came

out with an Indian clip art package for the Indian DTP segment priced at Rs 500.

It is now test marketing Smart Bazaar, a market-process computerization software

in local language. "In B and C-class cities, customers would like to get

their cash memos in their own language. This package does exactly that,"

says Joshi.

CMDA: AN ACTIVE ASSOCIATION



Computer and Media Dealers’ Association (CMDA) is the only organization that
comes to the rescue of the entire IT channel community in Pune. It has around

200 members from not just the consumables business, but also peripherals,

hardware and other segments.

According to Shyam Bhandari, the newly elected president of

CMDA, "Pune will become the next IT hub of the nation." The

association is planning to have an IT plaza for Pune. CMDA is also planning to

have a local credit rating agency, with a scope of expanding it to the national

level. The other issues that CMDA wants to address include: payment defaults,

octroi and warranty.

NELSON JOHNY in Pune

Market Speak...>>>>>>>>

Vinayak Apte, CEO, Microline Suresh Joshi, MD, Cache Tech. “Pune’s strength comes from its engineering and manufacturing base. Both these segments saw a major slowdown during last fiscal, affecting IT business adversely.” “No partner in Pune has grown in a major way during 2001-02. Many have seen negative growth in their business. In the networking field, with switches replacing hubs, the former product category has seen volumes rising sharply.” Ajay Aggarwal, MD, Seacom MP Singh, MD, Sai Power “The feedback to our Web-based retail management software package that was exhibited at this year’s CeBIT, suggests that our product is in league with the best products of the world.” “The industry must have faced a downfall. But, we have been able to maintain a steady growth. Our dealers are happy because of our support policy and the margins that we give them.” Naam Moryani, Director, Baba Infotech BB Somani, Director, Abee-Info Consumables “The slowdown has only helped us because all the small-time businesses, which were set up to get rich in a shortwhile, were wiped out. Now only the serious player are in the game. And it is a good thing that has happened.” “We are very soon going to create a revolution in the refilled ink business with the launch of Easy Fills. These are high quality pigment-based ink refills at the price of low-quality dye-based inks.” Kamlesh Khatod, Director, Bela Computers RR Joshi, Jt MD, Modular Infotech:  “No matter how bad the economy is, consumables bussines will not face difficult times easily. The only threat is the competition from a large number of people getting into this business.” “The scope for language software is immense in the country today. We are going strong on developing market-process computerization systems in local languages.” Sunil Gugale, MD, United Peripherals  “All those in the ‘high volume low margin business’ had a tough year. United’s focusing ‘low volume high margin business’ helped us maintain a decent growth even during slowdown. This was possible only because of the value addition we gave in terms of immediate support and after-sales service.”