Onward bound!

Margin pressure in its banking software business and a cut in worldwide IT spending after the dot com bust forced Onward Technologies to reinvent itself. Today, the company is riding high on the back of explosive growth in engineering design services, says Venkatesh Ganesh

After the dot com bust, we were looking for a niche segment that would help us improve our revenues. Design engineering services fitted the bill perfectly, says Harish Mehta

Engineering design looks set to be the next rising star of Indian IT. Research firm Avendus says that the global slowdown in the automotive and aerospace sectors will result in most Fortune 500 companies looking for low-cost suppliers who can deliver quality work and help them improve their margins. Firms such as Onward Technologies are repositioning themselves to tap this $7 billion opportunity.

The focus on high-end engineering design services has paid off for Onward as the company reported a 42.5 percent rise in net profit for the third quarter of 2003-04. This was more than your run-of-the-mill quarterly announcement. It was the result of a concerted effort to restructure Onward Technologies’ business lines based on market trends. The company has scaled up its offshore operations and it offers high-end engineering design services today.

A new dawn

Onward’s stock price movement over the last six months

In 2001, Onward Technologies offered systems integration services in banking, CAD-CAM (mostly low-end work) and customised software development. Its traditional business lines of software services, banking solutions and e-learning were not generating sufficient revenue growth for Onward. Sensing that it was time for a change, the company decided to restructure itself. Explains Harish Mehta, chairman and managing director, Onward Technologies, “We decided to restructure our operations and move into the lucrative product design space.” The company realised that the global engineering design market is worth a hefty $7 billion. An Avendus report states that 30 percent of a company’s R&D spend is on design and 40 percent of this can be outsourced. Realising its strength in this space, Onward identified four niches in CAD—automotive, agricultural, industrial and aircraft components.

Says Mehta, “After the dot com bust, we were looking for a niche segment in order to improve our revenues. Design engineering services fitted the bill perfectly. Considering the fact that we have been delivering IT design engineering services since 1991, we had already built up a high level of domain expertise [in this area].” This expertise is being tapped by clients such as Emerson and John Deere. A majority of the company’s clients for this kind of work are from the automotive, aerospace, agricultural and heavy engineering equipment verticals.

Onward's revenue split across service lines

Kissa kursi ka—design and testing

Earlier Indian design engineering firms concentrated purely on converting low-end physical engineering data into software-readable data. However, it is high-end design

and testing work that sports attractive margins. Currently, Onward is involved in designing and testing products according to parameters such as their performance in a real life environment by developing a prototype. For example, Onward developed a complete seating system for a major US automobile manufacturer. It didn’t merely redesign the seat; the company also developed a physical prototype that was tested at the Defence Research and Development Organisation (DRDO) lab in Pune to comply with Indian and European quality benchmarks. Onward is now eyeing the $1 billion design outsourcing market for automobiles. Using its knowledge base and processes, the company feels that it can reduce development costs by around 50 percent. It is also involved in offering design engineering services to sheet metal, castings, and plastic manufacturers.

Banking on BFSI

BFSI (banking, financial services and insurance) is still strategically important for the company. Onward’s banking and software support division (BSSD) provides services to its banking clientele. Onward took the strategic step of strengthening its presence in the BFSI space by buying Kale Consultants’ banking solutions division. This move also gave a boost to Onward’s Networking Software Solutions Division (NSSD), which focuses on networking services and system integration for BFSI organisations. With this acquisition, Onward can tap the US banking industry, which according to IDC estimates is expected to spend $60 billion on IT by 2006. Similarly, the European insurance sector is expected to be a sizeable market. According to Celent, a consulting and research firm, the European insurance industry’s spending on IT is expected to touch Euro 22.3 billion in 2004.

Nasscom estimates that the financial services sector accounted for around 39 percent of Indian software services exports in 2002-03.

On the eServices front, Onward has entered into an arrangement with Experia Solutions for providing end-to-end outsourcing for IT-based business initiatives and eKnowledge (e-learning) development. According to the arrangement, Onward will provide system development and software maintenance using both offshore and onshore models. This is in line with India software Inc’s global development model strategy. Says Mehta, “We follow a global delivery model to reduce the time and cost involved in engineering program design. Our services are delivered through offices located in the US, Germany, and UK to customers across the globe.” Onward’s offshore development centres are located at Mumbai and Pune with 51 customer support and service locations across India. Globally, the company has a presence in the US, Germany, UK, Singapore, Finland and Japan. Its worldwide presence has helped Onward add thirty seven new clients during the last twelve months.

Designs on high-end automotive work

Avendus estimates that automotive design constitutes 68 percent of the global engineering design market. With India on its way to establishing its credentials as the leading outsourcing destination in the world, the list of companies outsourcing engineering design work to India is on the rise. Even though, this number might not match the client size of the software services market, it nevertheless holds considerable potential. Harish Mehta is looking at the big picture when he talks about the future of Onward Technologies. He believes that there is bound to be an influx of high-end engineering design jobs to India in the next five years and that this will drive the Indian manufacturing industry in the long run.

Despite the fact that some of the work till date has been low-value, high-volume stuff (such as scanning designs, migrating CAD data from one system to another, digital conversions etc.), it is quite possible to move up the value chain. With a rejuvenated focus on two of the biggest potential areas that the Indian IT industry can address, Onward is set to grow again.

venkatesh@expresscomputeronline.com