Active import substitution in recent years has substantially pushed up the development of the Russian IT market and contributed to the business growth of many local companies. For instance, as the Russoft software developers association estimates, the sales of Russian IT companies on the Russian market soared around 30% year-on-year to reach 2.6 trillion rubles in 2024. Therefore, many software product developers have faced some growth issues. One of the ways to address such issues could be to conduct an IPO and obtain the status of a public company with all relevant attributes, rules and requirements, Director General of Nanosoft PJSC Andrei Seravkin said in an interview with Interfax.
Q.: Your company is specialized in engineering software, which is not an easy segment of the IT market. What does it look like today, what are the prospects for development in this segment?
A.: You can use the findings of the Strategy Partners survey, which was released last October, as a benchmark. According to this survey, the volume of the engineering software market in Russia reached 27 billion rubles by the end of 2023. It has been growing well in 2021-2023, and it is expected to continue growing until 2030 at 16%-18% per year. At the same time, the growth of the entire market was projected at 16%, while the growth of Russian vendors’ businesses at 18%. This market is expected to reach 74 billion rubles by 2030.
Last year, judging by our results, the market surged 16%-18% as projected.
The engineering software market itself includes a number of segments such as basic computer-aided design (CAD) systems and industry solutions based on it, construction and surveying CAD, industry CAD, as well as building information modeling (BIM) systems, shared-data systems and product lifecycle management (PLM) systems.
There are four major players on the market, Ascon, Nanosoft, Top Systems and CSoft, which have surpassed the threshold of 1 billion rubles in revenue and are dealing with graphical design tools, which are the core tools in engineering software, as there is no engineering software without graphics.
The rest of the market participants have much lower revenues or develop applied software.
Q.: Which of the aforementioned segments of the engineering software market are the main ones in terms of volumes and customers?
A.: As of today, the major part of the market falls on industry segments, namely, engineering software for construction and engineering software for industry, primarily, for mechanical engineering.
As for the construction industry, the so-called platform solutions or solutions based on a single graphics platform remain the most demanded. The point is that a large number of various engineering occupations are involved in the construction industry. Each of them has its own design section. Therefore, designers need to ensure interaction between these sections. What is more, this includes a unified graphical representation of the design object. Whereas platform solutions have a certain advantage, as it is easier, more convenient and efficient to provide data exchange between sections, make and coordinate changes.
Previously, Autodesk with its AutoCAD solution had a virtually monopolistic position on the Russian market in the area of engineering software for construction. With its departure, there is only one platform solution left on the market – our system nanoCAD.
Additionally, the information-modeling trend has started to develop actively in the construction industry. This is facilitated by the government, which has been elaborating a regulatory legal framework for the use of information modeling in construction since 2021. We are currently approaching the point when the requirements for creating information models of construction objects cover a vast range of customers. Whereas previously the requirements for information modeling applied only to the state order and critical information infrastructure (CII) facilities, now actually all the construction projects must submit information models for an expert review. This means that all designers and developers should have the appropriate tools.
Autodesk software used to dominate this segment as well.
The mechanical engineering is developing towards modern production, where not only design is important, but also engineering analysis and even CNC machine control. It is based on a single platform as well. This is because there is no truly large-scale serial production in Russia. At the same time, commercial businesses in the area of mechanical engineering are on the rise due to customized and small batch production. In this case, an enterprise needs to be able to reconfigure its production rapidly. If you work using a neutral format, it can take quite a long time to transfer data from the design system to the same production management system, check the data, edit the model, and set up tooling. If the system is unified, the project will be updated swiftly, even automatically, from making changes to the design documentation to customizing the production line for a specific product.
Furthermore, the use of different systems and formats of neutral data exchange in a number of cases causes some more difficulties, as data transfer via neutral formats usually produces certain errors. This is critical, for instance, in high-precision production, where allowable errors in product dimensions are minimized.
Import substitution has also had a major impact on the development of this segment. In mechanical engineering, there used to be four flagship vendors, Dassault Systemes, Siemens, PTC, and Autodesk. With their departure, two major Russian players, Ascon and Top Systems, remained on the market. Whereas Nanosoft joined them last year.
In terms of commercial revenue, the construction and mechanical engineering sectors are approximately equal. Judging by the number of licenses and by the capacity of the segment, the construction industry is twice as large as mechanical engineering. At the same time, one should bear in mind that the construction industry is lagging behind in terms of digitalization and digital penetration at the next stages of construction.
Q.: Does this mean that there is a substantial untapped potential for growth of the engineering software market in the construction industry?
A.: Absolutely. In mechanical engineering, both the design and manufacturing phases are automated. In the construction sector, the vast majority of market participants are at the design automation stage. Automation at the construction stage is precisely an objective of using information models. The development of this trend is just commencing. However, even now the use of BIM makes it possible to obtain information on construction planning and procurement for construction immediately. Appropriate solutions help monitor the construction progress, compare the construction results with the information model of the object at the design stage. It is also possible to apply the information model at the stage of operation for organizing repairs, conducting scheduled inspections, and so on. However, all this is a matter of the future as customers are just moving to the use of information modeling technologies.
Q.: A major part of construction work in the country is somehow linked to the state order or state-owned companies. Does the government have an impact in terms of digitalizing construction?
A.: By now, there are already requirements in the legislation regarding the mandatory use of an information model in the construction projects under the state order, in creating CII facilities, in the design of shared construction objects, and, since early this year, in low-rise construction as well. In fact, this legal requirement now covers the entire range of construction work. However, it is only in terms of design. The employment of information models at the stage of construction and operation is yet to be regulated.
At the same time, one should realize that the number of information model consumers, and therefore, consumers of the corresponding software, is much higher in construction than in design, and it is much larger in operational activity than in construction.
Q.: Foreign engineering software vendors have exited the Russian market. However, customers continue to use their products actively. How effective is the import substitution process on the engineering software market?
A.: The situation is ambiguous. On the one hand, all licenses for the corresponding software of Western vendors have been outlawed. Some in 2023, some others in 2024. Autodesk sent letters to all Russian customers in early 2024 stating that all of its software that they use is unlicensed from now on. Therefore, all customers who after that continue to use Autodesk software, as well as other foreign vendors, moved into the gray zone, and became de facto ‘pirates’. Even though they had previously paid money for that software.
According to our estimates, this resulted in the piracy level on the engineering software market climbing from 65% in 2023 to 70% in 2024.
On the other hand, customers are actively making plans to switch to the corresponding Russian software. One should realize that such a transition could not be a one-step process. Especially in the case of large customers, as it is impossible to transfer 2,000 to 3,000 engineers from one software product to another at the snap of fingers. That requires not only the introduction of appropriate software, but also changes to some business processes and retraining of employees.
I think that de jure customers will switch to using engineering software from Russian developers in the next few years. Whether they will switch to Russian software de facto is an open question. A lot will depend on how vendors and their partners will work with their customers, what kind of technical support can be provided to them, and how they will organize the work on refining and developing their products.
Q.: Autodesk and other Western vendors used to provide many of their products on a subscription basis from the cloud. To what extent is such a model in demand by customers when switching to Russian engineering software?
A.: As of now, state-owned companies constitute a major part of engineering software customers. If their closest contractors are also taken into account, they will collectively account for more than 50% of the market. This entire group of customers, from the point of view of security, cannot fully utilize cloud solutions. As practice has shown, Western vendors, which are actively developing the provision of their products or services from the cloud, may instantly deprive customers not only of the design tool for which they paid, but also of the data that were created or processed using these tools.
Therefore, many medium and large customers have restricted access to the Internet for designers, who are working in a separate loop of the corporate information system that is not connected to the web.
Meanwhile, small-sized businesses take security issues, including the risks of data loss through the fault of foreign vendors, not very seriously. Those customers who need to do something simple and easy, quick and not secret in terms of design can be named here as well. However, Western developers’ moves show that they also have something to worry about.
This means that the mass use of cloud services by customers is unlikely at the design stage. At the same time, for instance, in the construction sector, cloud services can be used at the stages of construction and operation, when a large number of employees need to have access to drawings. Nevertheless, here the matter will be not so much about design tools, but rather about tools for viewing documentation, approval, and so on.
Q.: Currently, the entire Russian market is complaining about a personnel shortage one way or another. Primarily, it is a shortage of qualified personnel. Is the human resources situation in the engineering software segment equally tense?
A.: Perhaps, it is even more strained. There are higher requirements to programmers in the area of engineering software. However, they do not concern industry specifics, but rather their knowledge of mathematics in terms of working with graphics. This dictates its own requirements, for example, to the knowledge of certain programming languages. That is why there is a severe shortage of specialists on our market. There are very few new programmers with the appropriate knowledge and skills. And targeted headhunting undertaken by our competitors does not help resolve the issue. That is why we, for example, decided to work with higher educational institutions, and we are taking students for internships, training and cultivating specialists we need. At the same time, the objective is not only to attract and train the required specialists, but also to retain them.
Q.: Does your company intend to conduct an IPO in order to launch an incentive program following the example of other public IT companies?
A.: It is not only that. In general, the idea of an IPO was brought up in our company proceeding from two key objectives. The first objective is personnel, their attraction and retention. The second objective is to change the management structure of the company. The point is that we have grown tremendously over the last three to four years, as our revenue rose 16% to 4.1 billion rubles at the end of last year. In our opinion, preparations for the IPO and entry into the public market will enable us to develop supervisory functions, business planning and an incentive program in the company.
Q.: What amount of shares is your company planning to place? What will be the format of a deal?
A.: We are planning a 100% cash-in deal, with all the money raised going to the company. As for the placement, we have registered an additional issue of 37.5 million shares. The final amount of the issue will depend on the company’s appraisal, which we have not received yet. Based on the outcome of the appraisal, we will decide on the actual amount of the issue. Nothing from this issue will be allocated for the incentive program, as we are planning to use the shares that are currently on the balance sheet of Nanosoft Development, our subsidiary company, that is, 6.2 million shares, for this purpose. The incentive program itself is still under development.
Q.: For what purposes does your company intend to use the funds raised in an IPO?
A.: They will be used for the development of our company based on three trends. Internal development programs constitute one of them. We have innovative projects that we are developing. For instance, this is a project for laser scanning, recognizing the findings of such scanning and transforming them into 3D objects suitable for using design tools. This is also a project to apply AI technologies to analyze design documentation and its compliance with various standards, rules and requirements, which is expected to cut the time required to draw up such documentation and conduct its expert review.
The second trend is focused on M&A deals. The market is currently developing through the integration of products and solutions. The cooperation in this area is possible in various ways. These include capital mergers in order to reach a certain synergy.
The third trend is international expansion. Our product nanoCAD is presented in 18 languages. For now, we are operating as an online store. After 2022, we lost the markets of Europe and the United States, where we had started working by that time. As of now, we have to reformat ourselves to be able to operate on the markets of friendly countries. The format of an online store is no longer suitable here, as we need to ensure our regional presence, and we need a partner network, training, and certification. All of this requires investment.
We do not yet have a specific investment estimate for entering foreign markets, as we have not yet elaborated a financial model for reaching out to these markets.
Q.: The owners of CSoft, which is also operating on the engineering software market, are Nanosoft’s main shareholders as well. Are there any plans to merge the businesses of the two companies?
A.: As of now, there are no plans to merge these companies. Their businesses are very different. Nanosoft is focused on the development and sale of box solutions, as its goal is that a person, having installed our product, could start working with it in one or two days. In this case, any accompanying consulting and service involving the installation and customization of the product is not required.
CSoft faces a different situation. The company is focused on dealing with premium customers who require a comprehensive approach. This means that in their case the first priority is not the sale of a license, but the provision of services.
Q.: Does your company plan to pay dividends?
A.: We have adopted a dividend policy, under which we are planning to pay no less than 25% of net profit based on consolidated statements at least once a year. At the same time, we are leaving the upper limit open-ended. We have been de facto paying dividends to shareholders twice a year over the past two years. We posted a net profit of slightly more than 2 billion rubles by the end of 2024.
Q.: The situation on the financial markets is far from being rosy now. Would it not be better to wait for conditions that would be more favorable for an IPO?
A.: Overall, our goal is not so much to get money, but rather to obtain mechanisms and processes for dealing with personnel, as well as for the development of our company. A corresponding plan has been developed, and we are following it. The market situation is definitely quite peculiar now. However, the downward trend will not last forever, and the growth stage will begin as well.
