Ganesh Natarajan, vice-chairman and CEO, Zensar Technologies, the Information Technology (IT) business unit of the RPG group, doesn’t complain about the recent downturn.
The mid-cap IT company’s top line has been growing in double digits. During 2008-09, when the IT industry was in the doldrums, Zensar’s top line grew 16 per cent and net profit was up 35 per cent on a year-on-year basis. This at a time when the overall net profit of mid-cap IT companies declined 14.3 per cent.
In the past seven quarters, Zensar’s net profit grew substantially higher than frontline IT companies, said analysts. According to a recent ShareKhan analysis, the company’s revenue, ebitda (earnings before interest, tax, depreciation and amortisation) and net profit grew at a compounded quarterly growth rate (CQGR) of 3.5, 7.7 and 9.9 per cent, respectively, over the period.
That was reason enough for the Harvard Business School to prepare a case study on the company’s business model — how it sustained during the slowdown.
Natarajan, who was brought in when Zensar was deep in the red in 2001, said the reason for the smart turnaround was due to the initial investment the company had made on people, cost efficiencies and geographical expansion.
“On the revenue side, one has to adapt to change. We entered three new verticals right in the midst of slowdown — utilities, media and entertainment, and education — and they are all doing well. The other aspect is non-linear focus, cost efficiencies and delegation of work,” he said.
| BEATING THE SLOWDOWN | ||
| Rs cr | FY09 | %chg |
| Revenue | 908.00 | 16.00 |
| PAT | 86.56 | 35.25 |
| Q1FY10 | %chg | |
| Revenue | 229.23 | 8.60 |
| PAT | 29.74 | 20.20 |
| Q2FY10 | %chg | |
| Revenue | 251.17 | 7.90 |
| PAT | 37.90 | 104.00 |
At the beginning of 2008, the company introduced a variable pay component, which meant 80 per cent of the salary is linked to performance. The other major push was increasing utilisation, now 80-90 per cent, probably one of the highest in the industry. And, finally the focus is on non-linear technology. So far, 30 per cent of the company’s revenue is IP-(intellectual property) led.
Early this year, Zensar launched a service called ‘Impact Sourcing’ for customers facing pressure on costs and revenues due to the economic slowdown. This service is being offered in the US, Europe, Japan and India. While the offering was to be a $40 million opportunity, it gave customers a savings of 10 per cent in any chosen process.
Zensar has indeed come a long way from being just a joint venture with Japanese IT company Fujitsu, with only two clients, to a Rs 909 crore firm in revenue and 250 customers. Natarajan, of course, is busy with future goals and not looking back. “When I joined in 2001, we started from scratch, like creating a collective vision, getting the employees back with a confidence and vigour,” he adds.
He is already busy implementing a three-year growth strategy. Some of the targets are doubling the company’s revenue to Rs 2,000 crore by FY13, making its market capitalisation at least four times of what it is today, increasing the customer base, maintaining the profitability at 12-14 per cent and focusing on innovation.
“Acquisition will be one route, but not the only one. By March-end, we should be able to close a deal in the $20-25 million range. We are also open to looking at a larger acquisition that will give us entry into a new vertical. We might also look at a foreign listing in the medium term,” said Natarajan.
The company forayed into South Africa in 2003, something that has grown into a Rs 1,000-crore business. The other growth areas the company plans to work on are sectors like infrastructure management services and testing, which have proved recession-proof. Add to this insurance and retail, segments that have done well during the past year.
People issues are something close to Natarajan’s heart. By next year, Zensar will have 11-12 vertical heads who will operate like mini-CEOs – people who would be responsible for profit and sales of their unit. The company will also appoint a chief innovation officer shortly, who would steer incubation of businesses. “That will provide the differentiation over three-to-five years,” Natarajan says.
