Patni may host all IT services on 'cloud'

Notwithstanding the speculation that continues over the stake sale of the Patni brothers (who hold 48.3 per cent) and General Atlantic (which holds 18 per cent), Patni Computer Systems says it hopes to become the first company in the country to host all its information technology services on the cloud (a metaphor for the internet).

The company’s pilot is in place and the data reside on a large business-to-consumer (B2C) player’s data centre. Patni, according to Chief Executive Officer Jeya Kumar, plans to have all its internal IT services hosted on the internet, with many B2C players by June 2010. The company, says Kumar, spends Rs 190 crore on its internal IT needs annually. These include servers for storage, desktops, networks and bandwidth.

“We are our own guinea pigs when it comes to cloud computing. Once we are convinced that it is secure and fruitful, we will extend these services to our customers, too,” says Kumar.

Not only will Patni be “able to save around 30 per cent by way of capital expenditure (capex) and 30 per cent on space when the process is completed”, says Kumar, but “when we acquire a new company, we will not need two data centres even if the headcount doubles. The complete new portfolio from the acquisition will be hosted on the web.”

Patni has shortlisted four firms for a multi-million dollar acquisition, according to Kumar. It has signed a term sheet (expression of interest) with one company “which is a global player”, and he hopes the acquisition will take place by February. The company plans to appoint investment bank JPMorgan for this.

“We will either buy for access to newer geographies or for intellectual property (IP). The company we have identified is rich in IP,” says Kumar. Patni is “in various stages of negotiations” with the other three companies. “We plan to fund the acquisition with the close to $400 million that we will have in cash with us by December-end. We will borrow if necessary,” says Kumar.

The acquisitions, according to Kumar, are part of Patni’s inorganic plan to reach the $1.4 billion revenue mark (current revenue is $700 million) by 2011. But it took Patni 35 years to reach $700 million. Is this plan to double the revenue in three years realistic?

“We were the leaders (along with TCS) when it came to outsourcing. But we lost track along the way, and others overtook us, since we missed the Y2K (Year 2000), dotcom and enterprise resource planning (ERP) buses,” admits Kumar, adding: “However, we know how to achieve our $1.4 billion target.”

Towards this end, Patni “has hired some good talent and expanded its management team to 13 members”. Second, it has reorganised the company structure to carve out India from the Asia-Pacific region. “India accounts for just three per cent of our revenues currently. We hope to take that figure to 10 per cent by 2011. For that, we are banking on the e-governance projects and others like India’s Unique Identity (UID) project,” says Kumar.

Patni has also set up a ‘Patni lab’ and an ‘Innovation Lab’. The first is for its “internal business”, while the latter is for its “customers”. “The ‘Patni lab’ is for new buiness inclubation. We expect new businesses — whose nature we obviously are not aware of at this moment — to contribute to at least 10 per cent of our total revenue in the coming years,” says

Kumar. “These new businesses,” he adds, “will be less people-intensive (non-linear growth) and more domain-centric.”

Last, but not the least, Kumar is “conducting townhall meetings to assure the employees that all’s well with the company, and simultaneously apprise them of the targets”.

Despite the slowdown, Patni, according to Kumar, gave its employees “a suitable hike which was performance-based in July 2009 itself”. “The top 20 per cent were given salary hikes, while the bottom 10 per cent were asked to leave. Productivity will be the baseline for salary increases at Patni,” asserts Kumar. Patni has 13,600 employees.

So, how will 2010 pan out for Patni? “There are pricing concerns, but not as bad as we thought. Overall, pricing will affect our margins by 220 basis points for the full financial year, which is not bad. Currently, the deal pipeline is very positive, and clients are willing to take outsourcing decisions. However, we will need another three-four quarters of growth before we uncork the bubbly. I do not believe in the theory of jobless growth. The US needs to pick up for our business to pick up,” concludes Kumar.