Narendra Patni never tires of talking about how he started his company in a third-floor apartment at 10, St Paul's Street, Cambridge, Massachussetts, with his wife Poonam as the first employee. This was in 1972, when the couple was attempting to build an "offshore" business model. But nostalgic as he is about the past, especially about his experience at Woodstock in 1969 (he went to the US in 1964 on a Massachussetts Institute of Technology fellowship and later worked for Forrester Consulting Group), the 63-year-old founder of Patni Computer Systems has his feet on the ground when dealing with the present. His company, India's six-largest software services exporter, has just completed another year of operations, posting revenues of over $326 million (Rs 1,413 crore)and profits of $58 m (Rs 251.7 crore). His current goal: to find a place in the Tier I group of firms and make his company a $ 1 billion (almost Rs 4,400 crore) corporation. Patni is in a man in a hurry. In October 2004, the company acquired the California-based Cymbal Corporation for $68m (Rs 300 crore). That provided Patni with access to new businesses opportunities in several industries and marquee client accounts such as SBC Communications, the US company that is taking over AT&T, adding to Patni's impressive list of Coca-Cola, Oracle, ABN Amro and Gillette. Last month, the company announced a $100-120m American Depository Receipt issue. That will boost its market capitalisation from the current $1 billion plus, besides giving it much-needed visibility "� and leave it with cash to fund acquisitions. "We are now at the upper end of Tier II" says the Harvard-educated Patni, who shuttles between Boston and Mumbai. "While we cannot hope to displace any of the Tier I players, we can aim to acquire their characteristics." Indeed, it is ironical that both N.R. Narayana Murthy and Nandan Nilekani worked at Patni before they set up shop on their own. How is it then that Infosys has made it to the top of the league while Patni has remained a relatively small company? Contemporaries say it was the sheer vision of Narayana Murthy that made Infosys what it is today, apart from his ability to lead and build a team. Patni, for his part, feels he delayed too long in splitting his hardware firm and demerging the software business. "We wanted to list on Nasdaq before Infosys, but we delayed too much," he says. But he commends Infosys for its excellent training, manpower and the ability to move its people up the value chain. He is now anxious to make up for lost time. But Patni doesn't want to chase volumes-- he wants to excel in some key industry segments ("verticals," in industry jargon). "Infosys and Wipro are good at many more verticals than we are and we can't hope to overtake that. The idea is to choose a few verticals and aim to be within the top five vendors," he explains. Today, Patni's strengths lie primarily in the insurance vertical, which brings in revenues of $100m. But with Cymbal coming into its fold , Patni will now have a presence in the fast growing telecom industry, though mainly in the service provider area. Wireless, broadband and other technological convergence trends are driving telecom expenditure and Gartner has forecast that the IT spend of telecom service providers will grow at a compounded annual growth rate of 4 per cent between calendar year 2002 and 2007. Explains Mrinal Sattawala, senior vice president and head of marketing: "We can sell some of our existing products to Cymbal's customers, especially complementary products in telecom." Besides, the company also does work in the financial services and technology areas and is looking for more acquisitions to either support existing verticals or even build a new vertical. "It is crucial to have domain knowledge because that's what clients are looking for," asserts Patni. Adds Sattawala: "The areas we are looking for are travel and logistics, energy and utilities, media and publishing and retail." The company recently re-organised its sales teams on a geographical basis. These were earlier aligned vertically for the insurance and financial services areas, while the rest were aligned on a geographical basis. Sattawala observes that there is going to be greater focus on Europe which now contributes around 8 per cent to revenues, with the rest coming from the US. Just as it has been focused on the US, competitors point out that the company has, for too long, been over-dependent on one client, namely, General Electric (GE). Although with the Cymbal acquisition, GE's contribution to revenues has dropped from around 30 per cent to 27 per cent. But that's still sizeable. Competitors concede, however, that with the GE account, Patni has demonstrated its ability to handle large accounts for a sustained period "� it is the second-largest single customer for any Indian IT company. Patni has been making a concerted effort to to grow the number of its $ 1m clients "�in the December quarter it had 46 such clients, 10 of them from Cymbal. Ganesh Duvvuri, an analyst at the Mumbai-based Motilal Oswal Securities observes that if one were to compare Patni minus the GE business with peers excluding their telecom business, Patni has actually grown faster in 2004 than its peers. However, Duvvuri is concerned that some of Patni's large clients, namely, SBC, Gillette and Metlife, are currently being acquired or are themselves acquiring companies and that could result in a slowdown. Attrition which has been the bane of the IT industry has been an issue at Patni too. At around 19 per cent in the December quarter, it is one of the highest in the industry. Says an executive at a competing firm, "It is ironic because one of the main reasons for the attrition is the fact that the training systems in Patni are very good, actually among the best in the industry." That is perhaps why the attrition too is highest at the junior level. What is Patni doing to hold back its people? On salaries, the management has decided to stay within the third quartile, that is, neither at the top end now at the bottom. But, more than that, it has taken initiatives to create a leadership programme with McKinsey, the idea being to identify leaders early on and groom them. It also doled out employee stock options at the time of its recent IPO and has started a Master of Science programme for employees at the Birla Institute of Technology, Pilani, apart from other e-learning programmes. The other issue with Patni's business model, competitors say, has been the high proportion of fixed price contracts ( FPC), or projects that are signed up at a fixed rate, which account for 40 per cent of revenues and are riskier than Time and Material contracts (contracts that are taken on a cost-plus basis). They feel that this is one reason for the company's sedate margins because these contracts result in lower utilisation (the effective use of employees in projects). That apart, the relatively lower offshore component (40 per cent compared with 51 per cent for Infosys) drives margins down. Patni, it would appear, commands a lower billing rate than its peers. The management feels that some amount of brand building will result in higher billing rates. A champion for the Indian information technology industry, Patni, who has spent most of his life in the US, feels strongly that India should do both low end and value-added work. "We are well-positioned for both because we have the best demographics in the world. Even if the wage differential disappears, which it will in the next five years or so, we will have enough working people. So while we must strive to do more value-added work, we must continue to do back-end work for at least 10 years, because it's a good hedge for us. Otherwise, it will all go to China." The father of two, Anirudh and Ambika, Patni is also convinced that it's not necessary to be very big to survive. "There's going to be a movement to smaller vendors because customers don't want to be treated like a commodity, " he asserts. Nevertheless, Patni is in a hurry to grow bigger. "Now we have to catch the tailwinds, we have to grow faster than the industry." The urge to compete is evident. Narendra Patni is not willing to be left behind. |