Indian IT's Off-shore Gains
Riding high on the wave of global outsourcing, Satyam: “With 71% of the global GDP comprising services, we expect many more companies to move to location-independent (virtual) platforms, thus adding to our business,” says B. Ramalinga Raju, Founder and Chairman, Satyam.
“No country is better placed than India to cater to the demand,” he reasons, a fact borne out by the strong profits posted by the top four Indian IT companies. Youngest of the four, Satyam’s optimism was furthered, when it recently revised its guidance for 2006-07 from Rs. 6,000 to 6,100-crore to Rs. 6190 to 6290-crore, as a result of better volume growth. As well, rupee depreciation has also added to the upward revision of its annual revenue.
What is working for Satyam is the fact that in the first quarter, its net profit stood at Rs. 354.12-crore and off-shore contribution (44.34% as of March 2006, now pegged around 47%) continued to increase. Further, it added 34-new customers, even as repeat business stood close to 88%. Recently, the company also bagged multi-year deals from General Motors ($150-million worth of business partnering with CapGemini and Hewlett Packard to be executed over 5-years) and Nissan (5-year maintenance, support, and application portfolio enhancement deal with Nissan North America. It was, also, among the first companies to set up a separate large deal strategy by inducting a senior executive from Computer Sciences Corporation last year.
Raju affirms his belief in “multiplying leaders within the organisation”. “We are also focused on creating an organisational environment which will help us attract and retain the best talent in the geographies that we operate in. One such initiative is the setting up of the SatyamSchool of Leadership to groom leaders and fulfil the learning needs of associates,” he says.
His strategy appears to have clicked well. The steady rise in the number of clients in the $5-million (51 from 46 in the previous quarter) and $10-million bracket (33 from 27) suggests the business momentum will continue. As well, Satyam may manage to push for billing rate hikes among its existing clients if the trend continues. “This reiterates our customers increasing confidence in our ability to deliver higher business value,” says Raju. Satyam, also, added 1123-associates (read employees) in the quarter, their total number, including that of subsidiaries and joint ventures, rising to 29,843, and the fiscal year ending with over 36,000-Satyam employees.
However, adding new employees in the July-September quarter at a higher wage scale will increase costs, even as the company’s visa costs rose roughly to around Rs. 18-19-crores, quarter on quarter. Besides, Satyam faces stiff competition with other majors, such as, Accenture, BearingPoint, Capgemini, Deloitte Consulting, Hewlett-Packard, Computer Sciences Corporation, Electronic Data Systems, IBM Global Services, Infosys Technologies, Tata Consultancy Services, and Wipro.
Moreover, the top five clients’ contribution has been sluggish. It is client growth, outside the top 10 that has been the key revenue driver for Satyam. Moreover, Satyam’s 19% plus attrition rate, also remains a cause for concern, though Raju attributes the higher attrition rates to ‘forced attrition’. “Every year, we ask 3-4% of our employees to leave, if they do not measure up to the ‘Performance Improvement Plan’ mark. We will be satisfied with around 10-12% attrition rates.”
As well, there is over-reliance on off-shoring business projects from USA, although it has been reduced to 64% from about 85% from the US a few years ago, even as business from other geographies is increasing. Satyam’s contribution from Europe standing at 17.6% in the latest quarter is lower then that of the top three Indian IT companies. Then too, its subsidiaries haven’t been contributing, very positively. However, Raju, says Nipuna had turned cash positive, and is already poised to register $36-million in revenues in 2007, a slightly over 80% growth
With plans to expand operations across several cities, Satyam is likely to scale up capex from $75-100 million this year having acquired about 230-acres in Chennai, Hyderabad, Visakhapatnam and Nagpur. Continued reduction in the contribution of top 10 customers has helped in de-risking the business model. This leaves the company expecting to ramp up its China operations.
On the acquisition front, Raju says: “We are open to acquisitions to fill the gaps. But, the focus is on smaller companies with specialised skills.’’ Moreover, having concentrated on the BFSI, manufacturing and telecom sectors, the company is now looking at emerging sectors like oil and gas, pharma and healthcare. Domestic companies too, are now on the radar of Satyam (India currently contributes around 2-3% to the topline). So, when will the company hit the $2-billion mark? Raju says he cannot make any forward-looking statement
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