Patni Computer Systems’ stock has dished out one of the best returns in the last one year among IT players. The company under the stewardship of Jeya Kumar, a veteran in the IT services space with three decades of experience, has put its best foot forward when world looked a slippery place. With several client and management issues almost settled, he is bracing Patni for next round of challenges and opportunities. In a conversation with Sarath Chelluri, Patni’s CEO spells out the initiatives that made a difference and the road ahead. Excerpts:
Patni was embroiled in a lot of management and client issues for various reasons. How did you deal with them?
There are no skeletons in the closet. Governance was not an issue at any time, but transforming ourselves from a shy company to a communicative and an interactive one is the way forward. In the last 34 years, Patni has not lost any clients indicative of importance we attach to our customers and delivery mechanisms and this is where the emphasis would be in the future also.
What were the structural, mindset and operational changes that you tried to imbibe in the Patni culture?
I focused on three things-- improving coverage, rationalising portfolio and managing operating levers. From a vertical and service orientation, Patni is moving towards a region focused structure. Most of the business comes from English speaking nations like US and Europe, while India and other non-English speaking nations are expected to grow faster and this could be one of our focus areas. Besides, we laid emphasis on a micro-vertical strategy. We need to build expertise in the micro-verticals and sub-levels and then slowly make investments in the various verticals. We are trying to mould our billable engineers, who have a keen sense of innovation to pursue and deliver value in the long-term.
It was a “financial crisis” and then a “global recession” that the world had moved into. How did you tackle the situation?
I joined the team in the middle of one of the worst recessions. Everything from there-on had to be positive. Companies that worked on long-term operating models (year-on-year) are expected to be successful. Fine-tuning can always be done but it is not a time to make serious structural changes. We paid salary hike to 25 per cent of our populations in the July last year and improved the efficiency levels. We have been able to drive up the utilisations from 66 per cent to 77 per cent in the last calendar year. Besides, improving our management-employee ratio to 1:9.2 against an industry average of 1:5.2 to 1:6.2, we plan to further improve it to 1:10 in the days to come. Besides, the management is working on new salary hikes to reward our top talent.
What did you make of the Union Budget?
The Budget on the whole, was good, intrusive and a progressive one. We hoped for STPI extension and it has been extended by one year. We own most of buildings that we operate in and we have SEZ land that would help in the future. Another point is that the country should offer better incentives for R&D and innovation; we lag Singapore and Europe in this regard.
On the business front, how is the deal pipeline progressing? Any new deals on the anvil?
Big deals will take longer, typically 8 to 10 months for closure, we are in conversion cycles in some of them. Wings have sort of come back to deals. Even though Sun is shining, there are several dark clouds in the horizon. Exit of stimulus and 50/50 rule in US, China problems and sovereign debt crisis in Europe are things that worry. We would be announcing a couple of big deals by the end of March or early April. The deals would be from insurance and communication and media verticals.
How is the pricing scenario evolving for Patni? When do you expect the return of pricing power?
At the beginning of 2009, we estimated 5 per cent price erosion but managed a cut of 2.2 per cent actually. We are seeing pricing come back gradually. The US is still not out of woods. It is pertinent that price stability should return before we see price increases. We are in the pricing stability mode, and expect some price up-ticks to happen some-time in the second half of CY2010.
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Has improvement in fundamentals converted into business?
Volume growth has picked up since the second quarter of last year. Volumes in 2010 are expected to be stronger than 2009 via greater off-shoring. We are observing good traction in service lines like Infrastructure Management Services, Business Process Outsourcing and Product Engineering Services which are growing better in high teens, while application development and maintenance could be a little slower. In the event of anti-outsourcing or intervention in US, on-shoring would grow faster. We are looking at an onshore centre in the vicinity of Florida that could service not only US but also Latin America.
English speaking markets give most of the turnover, where would the growth come for you in the future?
We are seeing broad growth across all geographies and service lines. Europe delivered the first quarter of sequential growth in the last five quarters, and it is expected to grow faster than Americas that could grow in low double-digits. Along with Europe, Asia Pacific regions could be growth drivers. Japan is the second largest IT market; Patni could seek some arrangements in this market in days to come. Besides, we are seeing growth coming from telecom, insurance and BFSI domains, on the whole. Life sciences, a small segment, its growth rates would be healthy.
Any moves to grow inorganically and, what are the probable targets that you have your sights on?
Patni has cash equivalents worth $440 million in its books. We would be looking to increase our scale and some of the services lines in the enterprise application, infrastructure management service and BPO segments. We would look at potential targets in the range of $50-200 million to either fill portfolio gap or enhance micro vertical depth.
What are the hiring targets, and what are the challenges on the operating front?
Hiring will be across-the-board across all verticals. Overall, the company plans to hire up to 2,500-3,000 employees, which is double of our earlier set target of 1,500 for the year. We also expect to sustain utilisations to about 76 to 78 per cent during this period. Although, increased hiring and salary hikes could put some pressure, on the back of improved business environment and effectively managing efficiency, we are confident of operating margins growth of 15 to 17 per cent.
What is your vision for Patni going ahead?
From a $700 million company, we have legs to double in the next three years.
