Blue Star''s proposed spin-off of software business delayed

Blue Star has secured clearances from its shareholders and financial institutions for the proposed demerger of its software business into a separate company, Blue Star Infotech Ltd. However, the company is still awaiting a directive from the Mumbai High Court after the Blue Star Worker's Union filed a suit raising objections to the demerger plans.

In a letter addressed to the shareholders, Blue Star's chairman and chief executive Ashok M Advani says the primary objective of the union seems to be to somehow delay the spin-off apparently to put pressure on the management to agree to their other pending demands that are unrelated.

The software business of the company, handled its international software division (ISD), accounted for 7 per cent of Blue Star's Rs 476.5 crore sales in fiscal 1998-99. The division recorded sales of Rs 32.8 crore during 1998-99, reflecting a 61 per cent increase from its year-earlier level.

Established in 1983, the division increased its international focus after Blue Star acquired the US-based USIN International Inc in 1995 to market ISD's services. In 1998, Blue Star set up a wholly owned subsidiary - Blue Star Infotech (UK) Ltd - to market its services in the UK and other European countries.

According to a company official, the company will increase its offshore focus in European countries by setting up 100 per cent subsidiaries. However, this will happen only after the demerger, the official says. Geographically, US operations contribute 59 per cent to ISD's turnover, followed by Japan (17 per cent), India (17 per cent) and UK and Europe (7 per cent).

The company has been increasing its offshore focus in the last two years. The offshore work increased to 67 per cent in 1998-99 from 57 per cent in 1997-98. ISD's customers include Business Engine Corporation and Ac Software from USA; 3M, Racal and Tecnomen from Europe; and Hitachi Medical Corporation from Japan.