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'We think IT spends will pick up this year'

By Shivani Shinde
March 10, 2010 13:18 IST
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Bangalore-based information technology services firm MindTree has set up an ambitious target of becoming a $1-billion (around Rs 4,600-crore) company over the next five years. The company achieved revenue of $269 million (Rs 1,237 crore) for the financial year 2009. Executive Chairman Ashok Soota agrees that, to achieve this target, the company will need to have a compounded annual growth rate of more than 35 per cent over the next four years. In a chat with Business Standard, he explains why he still remains bullish and how he plans to go about the task, despite the fact that the IT sector is not expected to grow more than 15 per cent any time soon. Excerpts:

The required 'run-rate' for you to achieve $1-billion revenue is over 35 per cent. But, the IT sector is expected to grow only 12-13 per cent next financial year...

I don't think one should get coloured by what happened in a year's time. If you step back a bit in time, when we were just three years old with an $18-million revenue, we still set a goal of being a $200-million (around Rs 960-crore) company in five years. People thought it was ambitious. While we didn't touch $200 million, we reached $192 million (Rs 883 crore). The growth was 11 times.

When we articulated the $1-billion target, we had not thought about the economic slowdown. I agree, it would require a 'run-rate' of over 30 per cent CAGR for the next five years. Considering this year will be a flat year, the asking rate to achieve the goal goes up to 39 per cent. Having said that, yes, it is a bigger challenge since we articulated it. But, we still think it is a doable challenge. We think IT spends will pick up this year. It's a slow recovery but there will be a pent-up demand. More and more companies are looking at becoming IT-intensive. IT needs will be growing. India, as a market, is growing. We will watch the space.

What will aid this growth?

There are several things. We have entered new service lines and sectors and are eyeing new geographies. So, it is a mix of all. We do not intend to increase our addressable market in a big way. The idea is to create an entry into certain small segments where you can claim leadership. We may add one or two industries. For instance, we have decided to get into digital surveillance. I think growth will come through building deep domain knowledge, differentiation through other specialised solutions, focusing on Indian geography. So, for instance, India accounts for seven per cent presently. I hope, by the end of the five-year period, it will be 10-12 per cent. We are also setting up a government industry group - we did not have a vertical focus.

Two, we have also taken an entrepreneurial bet in terms of entering into the product space. IT firms have mostly stayed away from the products segment. This will also allow us to gear our IP (intellectual property) development. Wireless is another area. As we positioned ourselves as leaders in the Bluetooth segment, we are confident that we will achieve the same in the wireless space as well.

Third, we want to gear up our infrastructure management services offering. Acquisition could be a route to grow in this sector. The other thing is to get into bigger deal sizes. Now, the sweet spot for us is $25 million (around Rs 115 crore). We want to get to $50 million (around Rs 230 crore).

Can you elaborate on what the company plans to do in the wireless space?

There are two parts. One is the infrastructure and intellectual property. The other is the capability we have due to the Kyocera account.

Another aspect is that it allows a relatively lower risk model as we get into the white-label space. It is a low-risk model, as there is no inventory risk. Besides, there is no marketing cost, as these are white labels. In terms of margins, some of the successful white-label manufacturers make good margins.

Now that the integration with Aztecsoft is over, how do you see it panning out?

I think Aztecsoft complements us very well. Aztecsoft had a good presence in the US, we were strong in the Europe region. I think they got us two businesses. One is the offshore product development. We were focused on embedded systems and semiconductors. Whereas, Aztecsoft was focused on the software side. Now we have chip-to-cloud product engineering capability.

The second is the testing business. Well, it was complimentary in terms of approaches. Now we have got critical mass. Since we are sizeable company in this segment, we also get access to all the deals within this segment.

What is MindTree's non-linear strategy?
My personal view is we will not see dramatic changes in the industry. However, business models will change. Having said that, the area that will help us is infrastructure management service. The other is IP. Third, our focus will be on developing productised solutions. I believe the aspect of non-linearity that people visualise is a little exaggerated. You may get better margins, better productivity, but it need not translate into non-linearity.

Would the recent acquisition of AIG impact you in any way, since AIG is one of your largest customers?

No, it does not impact us. We have a global resolution and AIG continues to be our customer.

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Shivani Shinde
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