The Hindu Business Line : `More budgets opening up'

Sudhakar Ram seems to have slipped in noiselessly into his predecessor Ashank Desai's shoes, as Chairman, Mastek Ltd. There seemed to be no difference in his approach to his work and the vision for the company as he chatted up with eWorld early last quarter. He dwelt on the road taken so far, as also his view of the future. Excerpts:

You have talked about accounts you have bagged. What really accounted for this ramp-up? It went up to 382 and then came down to 359 and then...

New deals are obviously entry-level deals, some of them are large but most of them are mid-sized deals, but largely the ramp-up happened in the last quarter due to new orders from the existing accounts.

That was key, but the other was due to the four new insurance deals. This gets us a reference in the global top 40, if not 20.

Some of them are in the top 20 and some are beyond that, so, the accounts are good.

What is the nature of contracts you have bagged within the existing accounts?

Most clients are now relying on us for complete projects, even in the US. There is a company that has gone in for a package. We do everything to do with integration and data conversion. For existing accounts it is pretty much the solution kind of business. We added a small-sized account in the non-Elixir area, payment-processing area in the UK.

What kind of trend do you see in the US and the UK as far as discretionary spend is concerned, especially on the financial services front?

I can clearly see a lot more budgets opening up. The year 2006 was better than `05, 2007 will be better than `06 in terms of new initiatives.

What are the drivers?

Actually it is a combination, because there are two or three things happening. As you move away, in the US context, from traditional channels to independent financial agents, brokers, dealers, banks then it creates new system requirements, there is a pressure on new deals.

Second, these guys have to keep launching new products, one feature of life insurance is product innovation that is how you keep up with the competition. The ability to handle new products is restricted, so that drives demand for new policies, and hence the need for new business systems and policy administration systems.

Third, if I take legacy systems, at least some companies are realising that legacy is actually reducing the competitiveness in the market. They know that they can't do some big-bang approach every year to replace the legacy. These are the drivers for demand among new initiatives. The insurance industry is also doing well.

A recent report indicated that new initiatives are almost one-third to 40 per cent now. In 2005 it was 15-25 per cent.

What is fundamentally driving all this? How is competition?

The competition remains the same. There is no new competitor.

There are various companies who are looking to hit the market. I know Indian companies are talking about creating something, but we don't see them yet in the market place.

What kind of growth do you foresee, as your growth is still in the 20-25 per cent range on the revenue side for the US.

No, this year we grew up to 30 per cent. Next year will be better still on growth rate. Insurance in the US itself is $6 billion, in the UK it is $2 billion. Given this, our share is small. There is no market constraint for us. It is a question of execution; how many people we can put out; go after the market; and so on. I don't see any problem sustaining this. Last year, in the US we grew 30 per cent, this year it was 40 per cent and next year we will do better.

Last year, when we spoke, you had said that you added seven clients but were not very happy with it...

We have done well this year. In the first six months, we added six or seven, I think, but we will do it well.

Do you foresee a clear shift in the insurance vertical?

Not this year. The real shift in insurance will happen in the next financial year.

Are you looking at your model all over again because insurance will become a much larger proportion?

Our government proportion will still remain the largest, at least till 2008-09, and may be even beyond because we are planning to add a couple of more partnerships. Overall portfolio is 40 per cent from government, 20-23 per cent from insurance, may be slight shifts here or there.

On the government side, you have talked about two other large projects and partners. What kind of projects or partners have you gained?

These are outside capita deal. We wanted to add two more. These are areas that we have not done earlier. One is in the defence area, we are focusing more on defence now. What made us pick that is that our core capability lies in taking a complex green field project and delivering. We are looking at where this particular ability of ours can get full expression. This partner got involved in the proof of concept stage when they were bidding to the government.

In the case of the other partner, they were looking for an India partner, it is not specifically project-related. There again we are competing with many Indian competitors. Before June, these two should get decided. Our portion of the project will start with an initial deal of about $15 million. This is for an 18-month execution period.

How is the UK's National Health Service (NHS) project progressing?

It is definitely progressing better now. The program itself is very ambitious. When they are large you expect some kind of delay, but then once it gets rolled out then there will be no other country that has the same level of IT automation.

More than automation, it is the ability to use IT to improve your service. It is like one of the things that we have rolled out - it is called payment by results. You pay healthcare providers not for just treatment but whether it was effective. These are things that actually redefine healthcare, so I think we have done pretty well, I think our foot print keeps expanding year on year.

One of the things that expanded last quarter was that we got more work out of NHS. The tenure of the project is 10 years. We would have executed £55 million from NHS over the past three years, while the original contract was £35 million for 10 years.

So it has gone up fairly well. Now we are hoping that we will get a £100 million out of NHS, lifetime.

What about the Euriware contract?

There is no contract. It is a relationship. The initial thing is starting slow, in fact it is starting slower than we expected. Part of it was due to our learning process — in terms of how to get visas into France. We have got that set up in the last quarter. The first bid will happen only in October or November this year. There has definitely been a delay in this whole thing. So, the $35-million contract might be stretched over four years instead of three. Their strength is the energy sector, in the supply chain and in product life cycle management. This will help us build capabilities in that area.

In the US market, what progress have you made?

We tried to bid for state government projects outside India but we realised that we couldn't do much without a local relationship. Now, we think that in the US, unlike in the UK, we can't get into federal programmes, because an Indian company will find it difficult to compete. So, we could do intellectual property (IP)-based work around local governments. That's what we are exploring right now. I don't see anything material happening there in the next 12-18 months, but we will definitely remain focused on that market and build it over a period of time.

Do you need to restructure your client concentration?

It will happen over a period of time. The NHS program will go from project mode to maintenance mode. Three years from now, that will happen. Logically, the top five and top 10 will definitely go down, so we will get more broad-based. But all said and done, our strategy is not to have too many retail accounts. Any account we have we want to build to around $10 million-plus.

What are the typical deal sizes by insurance when you are scaling up? What type of scale potential do these clients have?

Typical deal size will depend on the country. In the US, it will start about $3-4 million and stabilise to $10-15 million a year in a three-year period.

In the APAC region, it would be $1 million to start with and stabilise at $3 million. In the UK, suppose we get more BPO deals, they will all have an initial size of $8-10 million and will remain around that figure.

Acquisitions?

There is a lot more activity this year than last year. There are companies that we are looking at, to supplement us in the insurance space.

In what areas would they complement you?

We cover 70 per cent of the spectrum of what an insurance company will require; these are companies that would offer the other 30 per cent. They are very small companies but very focused, it very nicely fits in with us offering, so that we can add that and make a more complete offering.

If tax exemptions go away over time, would it affect the smaller companies more?

Our tax percentage overall is (among) the highest in the industry. Because a lot of our work is abroad, we pay taxes there. When the exemptions go away, we could set those off here, under double taxation norms.

Are you beginning to see a change in your overall business. Any external pressures?

First, we reached $1 billion as an industry, and now we are at $20 billion-plus. If you want to reach $100 billion, it cannot be based on headcount. It would have to go beyond head-count, on solutions that use domain expertise. Then, you get higher leverage. Providing solutions is where you can scale up next, where you are creating business impact and can command pricing based on business impact. There would also be pure product companies that would either deliver (their wares) as product or software and service. The more we look at it, the more we are convinced we are on the right track, in the solutions space. Worldwide, the number of players in solutions has come down. The key solutions players are all moving to outsourcing. If you say I want to do some large government fixed bid, how many people in the world can bid for it, with a track record of managing a 400 man or 500-man project. Very few.

Some expertise is there, but that got diluted thanks to the dotcom bust. When clients cut back, vendors re-strategised to move to outsourcing, rather than to projects.

You talked earlier about efficiency in the 90-95 per cent range. How do you get that done, with projects done on time in the government space where scoping often changes?

See, it is very difficult to bend it down to any single discipline. There are parts to it. One is that people think that applications are things that you can specify and throw across the wall. You cannot. The vision has to be co-created with the customer, so we are very strong in working with them. That is just culture.

Second is enterprise architecture. As you get involved in increasingly larger programmes, your enterprise architecture capabilities increase. No piece of software today is an island, but sits in the context of a big, heterogeneous, multi-system, multi-platform that is there in any organisation. How do I make my piece work well with the rest of the environment? How can we even re-architect that from scratch? We have this capability at the design level.

Apart from the government vertical, are you thinking about any other?

Sure, every two-three years we add verticals. Now, one of them is in the asset management area, we have customers there. Another is healthcare, because we want to leverage whatever we have experienced in NHS, such as common electronic medical records.

bharatk@thehindu.co.in

More Stories on : Interview | Software | Outlook

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
The high and low of IT

Friendly neighbourhood Wi-Fi

Of bits and qubits

`Unlocking IP of diverse business units is key challenge'

Display setting, back-up devices

`More budgets opening up'

Beware malware

On the laser track

Surf with care

Quiz

Cartoon