'India's leadership to continue in IT outsourcing'

MindTree Consulting a Bangalore-based mid sized global IT Solutions company specialising in IT Services, Independent Testing, Infrastructure Management and Technical Support (IMTS), Knowledge Services, and Product Engineering. Set up by a group of techno-entrepreneurs 10 years ago, the                Rs 1,000 crore MindTree is now planning to reach the magic one billion dollar revenue by the financial year 2014.

Deccan Herald: In the last 10 years Indian IT industry has grown fast but also faced several challenges. Are you happy the way MindTree has grown so far?

Ashok Soota: The passion and the excitement of our early days still continue and in many ways it seems it was just yesterday we started. But when you look back and see so much has happened in the last ten years, our industry has changed and we have changed.
When we began, we of course had a 5-year mission and we also knew that building an institution needs at least 10 years. So we were clear about the journey ahead. We knew that in a service industry we will have to build customer by customer, person by person and brick by brick. At the same time we did not want to be overambitious as we knew that being too aggressive can lead to a collapse. Our target was to reach hundred million dollar in revenue, which we did in six years.

DH: Was that a big achievement?

Soota: Yes, certainly. Ours was the only company in the IT services space in India to reach this figure in six years, and that too after being affected by the dot-com bursts and telecom bursts for nearly two-and-half years. We set to create a differentiated company and I believe in many ways we have. MindTree is certainly differentiated on the people front and in terms of business focus on being consulting driven and IP led in R&D services businesses.

DH: Many institutional investors are not quite happy as they think the company could have done better.

Soota: In a generally bad market stock prices do not reflect the true performance of a company. All I can say is that we have pretty much fulfilled most original goals in the course of last ten years. But what surprises me is the fact that the survival itself is a big achievement. There are at least half a dozen companies in India started by industry veterans like us and another half a dozen companies in the US that started around the same time like us are no where in the scene now. So, if one dozen companies in the same space have collapsed, our survival itself is a big story, I think.

 DH: How would you compare your growth with the big four in the IT industry like TCS, Infosys, Wipro, etc?

 Soota: MindTree is one of the fastest growing IT companies in the country. The average five-year growth for big four companies till last year was around 34 per cent but we grew at 59 per cent. Last financial year, despite the slowdown, we grew at 20 per cent — faster than the big four. Of course, they (big four) are growing on a much larger base while our base is much lower. But the challenge will be to grow the business in the current year, in a downturn, when our annuity business is low.

DH: Unlike the big players in the industry, MindTree’s revenue from recurring businesses is low. Is this not a cause of worry?

Soota: This was not by default but by choice. More than the recurring business key issue is annuity which is predictable and committed more on long term basis.
Our Infrastructure Management and Technical Support (IMTS) business will get us more of annuity and so will IT services. Overall share of our annuity business was about 30 per cent which came down to around 20 per cent with the acquisition of Aztec Software a year ago.
My assessment is that in the next two years or so we will go back to 30 per cent annuity and after that it might go up to 35 per cent. But I am fairly certain that our annuity business will not go up to 65 to 70 per cent like many big, older IT players in India

DH: Is it a right strategy? Won’t it undermine steady stream of revenue?  

Soota: I think its fine because though we may have to live with a little bit of volatility in a slowdown, but when the markets are expanding we can grow our business faster than others. Companies with 60 per cent of the business from maintenance will find it difficult to grow that part of the business fast enough. So, quicker growth for them has to come from the other forty per cent of the business.

 DH: Are you confident of achieving the billion dollar revenue target by 2014 as set by you?

Soota: Yes I think so, but it will also depend how the market shapes up. We have already lost one year due to recession in the western world and our guidance for the current financial predicts lower growth rate. Please remember that when we had set this target no one had any clue of the global slowdown. But we are not giving up, we will work hard to reach this milestone in a planned manner.

DH: Any rethinking in your product mix?

Soota: We started with two engines of growth - IT services and R&D services, where IT services were 75 per cent of revenue and R&D 25 per cent. IT services span the whole world and R&D services is a more focused one.

But our next journey to the billion dollar target will be on six engines of growth and not two. We acquired Aztec Soft which gave us two new engines of growth testing and R&D services.   

 In MindTree we had testing but with Aztec this business got the large critical mass. Our R&D services business was focused as product engineering service from end to end but mainly in the embedded space like chip design, etc.

But from Aztec we got the expertise on product engineering business in software and enterprise. We have created six profit centres namely, IT Services, Testing, Infrastructure Management and Technical Support (IMTS), Knowledge Services, and Product Engineering.

Each headed by a chief executives they operate like SBUs (separate business units) propelled by own revenue and profit targets. They work as smaller businesses within MindTree contributing to the over all business targets of the company.

DH: Can you articulate the strategy to reach the billion dollar target?

Soota: First we will go for growth and depth in existing businesses by going for more expertise and domain capabilities in all verticals like manufacturing, banking, insurance, travel & transport, etc.  Secondly we have to expand into the adjacent areas of business. Knowledge services is a good example which we have just started with analytics but will expand to other segments.  In future we believe infrastructure support and testing will be huge areas of growth for us. In testing we have created the critical mass with Aztec which will allow us to bid for bigger projects. We are not planning for major geographical expansions.  

DH: Are you planning to enter the BPO space  to offer the complete bouquet of services to your customers?

Soota: We have said that we will not enter the BPO or the conventional ITES business. But many may say there is a fine distinction between very high-end BPO and knowledge services which we are entering into. Well we don’t mind that.

DH: With your vast experience in the IT industry how do you see the future of the Indian IT industry? 

Soota: Although a lot of people say that the India story (in IT) is over, one remarkable thing is that despite the rise of China, Mexico or Philippines, India is holding on to its position of a leader in IT outsourcing and increasing its market share.
What has also added to India advantage is that a large number of multinationals like IBM and Accenture, have also made India as their base. Indian companies as well as MNCs are driving our growth.
 
My assessment is that in IT services we will continue to remain leaders in application, maintenance and development. In IT Enabled Services we are leader again, but Philippines is one country which has built significant expertise in the last five years or so. It is the nearest competitor for India and may close the gap.  In the engineering space people say China is becoming a threat because it has a natural advantage of being the workshop of the world. Companies which have the need for IT solutions in engineering very often have manufacturing facility in China. These two can be coupled together to some extent to challenge India.   
 
The fourth area is infrastructure support where Indian industry has to make a dent. It is relatively under-penetrated business but can be a very important vehicle for future growth for Indian companies. It has already began as larger Indian players have started getting larger shares of the big billion dollar deals.