Healthcare sector promising: Sonata

Bharat Kumar

CHENNAI, Nov. 16

THIS week, Sonata became yet another known name in the software industry to warn of lower than expected profits, thanks to the gloomy business scenario in the US. As against the previous quarter, its revenue is expected to be lower by 50-60 per cent, and profits by about 60-75 per cent. Mr B Ramaswamy, President and Managing Director of the company, spoke to Business Line just before the profit warning that came on November 13. Excerpts from the interview:

Q: Among verticals, has any been hit badly? Any other area that is showing signs of promise?

A: Fortunately, we did not have too much focus on telecom. We wanted to get into it. But now, we will take it slowly and use the time, before it bounces back, to build our telecom expertise. We have been looking at healthcare. Now, we want to get more aggressive. There isn't too much action in this area, because of lack of clarity on the HIPAA front. People want a delayed deadline. Financial services sector is directly linked to the stock market and Nasdaq valuations. When their assets are not looking good, investments will be hit. But we will have to re-orient our priority. Today's priority is to keep the business first. Second is to make incremental investments and get more ``bang for the buck.''

Q: On the spending front, is there anything you would not spend on, if you were to go through this a second time?

A: No. We did not bet on anything unreasonable. All this infrastructure can always be scaled up. You don't have to be ready with capacity unless you have visibility of growth. I would not reverse any of the decisions I have taken in the last five years. We are accurately placed as far as space and staff go. If we had 100 more people, we would need another place.

Q: What is the bench like now?

A: In the last 4-6 quarters, we have had about 65 per cent utilisaton of manpower. Ideally, this could go up to 75 per cent. In the last 6 months, we have added one hundred people, including 40 trainees in the last month.

Q: If the financial services industry is less bright than expected, where do you expect to make up?

A: Healthcare is one sector I'd have expected to grow to faster than it has. Openings in insurance are fairly recent.

Q: Given the global gloom, is it time to look homeward?

A: For the first time, the products area is not growing as usual. We used to have 30 per cent growth. Now there is only 20 per cent growth. IT consulting is yet to see a slowdown, but the market is getting very segregated. Among business solutions, ERP is yet to look up, even though worldwide we see a resurgence of ERP.

Q: We have heard that undercutting is pushing billing rates to lows such as $12 per man-hour. How are you faring?

A: Twelve dollars per man-hour is a really exaggerated figure. Whether it is a time of gloom or of bright sunshine, rumours reach extremes. How can a known, big player, who has more than 500 clients, quote at $12 per man-hour for new clients? Word will definitely get around and the existing clientele can get disgruntled. For smaller, listed companies, profit margins are public knowledge and pushing for lower prices becomes a no-go, since we don't have really exotic margins. Even if anticipation of future business is the excuse for such rates, my question is: Will the revenue from this one client be more than the business promised by five existing customers? My view is that there isn't any company that can give such guarantees.

Q: Where do your billing rates hover?

A: There is some pressure on onsite rates. For us, it is around $60. Offshore, no change. It stands at around $22.5.

Q: Given the gloom and the intensifying competition from within India, has competition from other countries increased in the last three months?

A: No. Not China and the Philippines. At least, not any more than what it was before.

Q: How are you doing in Europe?

A: A year ago, 80 per cent of our revenues came from the US and the rest from Europe. This was in the first quarter last year. A year later, the ratio came to 60:40 in favour of US. This quarter, there will be a further shift away. We have set up an office in Europe. (For the quarter ended September, 2001, the company said that the ratio of revenues from the US equalled that from Europe.)

Q: Given that there is more interest in outsourcing and lesser big budget projects, is the number of new clients significantly more now?

A: Client additions have been same. Segments are different. This will be accelerated over the next six months. So smaller accounts and more numbers can be expected.

Q: How many $1 million clients do you have?

A: We have 25 clients who either are currently or will potentially be $1 million clients.