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‘Scale is not the driver; I’m enjoying the run’

Nishar, an IT sector veteran, talks about the challenges Hexaware faces, acquisition plans and the road ahead
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First Published: Fri, Sep 14 2012. 08 52 PM IST
Billion-dollar aspiration: Nishar says the company’s strategy would help it reach the $1 billion mark in the next few years. Photo: Hemant Mishra/Mint
Billion-dollar aspiration: Nishar says the company’s strategy would help it reach the $1 billion mark in the next few years. Photo: Hemant Mishra/Mint
Updated: Sat, Sep 15 2012. 01 21 AM IST
Mumbai: Atul K. Nishar , founder and chairman of Hexaware Technologies Ltd, is an information technology (IT) sector veteran. He set up computer training company Aptech Ltd in 1985 and was its chairman till early 2003, after which he sold his stake to devote his attention to Hexaware, which he had founded in 1990. Hexaware is now a successful mid-cap IT company listed on stock exchanges in India and London. The company posted a 148.2% increase in profit to Rs.267.03 crore for the fiscal ended 31 December 2011 on sales of Rs.1,450.51 crore—up 37.5%.
Despite rumours of a stake sale that surface periodically, Hexaware gained 82.36% year-to-date even as the BSE IT index rose 7.43% in the same period. Nishar was Nasscom chairman in 2000 and continues to be on the executive council of the software lobby group. In an interview, he spoke about his 22-year stint in the IT sector, the challenges his company faces, acquisition plans and the road ahead. Edited excerpts:
Tell us briefly about your journey in the IT industry...
I started Aptech in 1985. I ran it for five years before looking at the software business in 1990. By that time, I had a fairly good idea of the IT sector. I’m not a computer engineer, so it was important to get a grounding first. It was hardly a $100 million (around Rs. 550 crore today) software exports sector when I started. There was no listed company, no pressure of market capitalization or scale.
But some of the other IT companies that started around the same time have grown into billion-dollar firms...
Scale was never really the driving force. I wanted to enjoy what I was doing. We had no business house or godfather or joint venture to support us. So when I started, we had only enthusiasm, but no network among global companies. We struggled through the ’90s and got our first breakthrough with the Y2K phenomenon (many computer programmes stored years with only two decimal digits, risking a breakdown in the year 2000), which later led to maintenance contracts. We held on to those clients and began cross-selling and offering more services. Post 2000, we have seen very good growth and in 2003 I exited Aptech and started focusing full time on Hexaware. That helped too. The enterprise resources planning, or ERP, wave also helped since Hexaware’s focus is on enterprises. Even today, 30% of our revenue comes from enterprise solutions. Also, the global economy did well from 2003-07.
What’s the current Hexaware strategy?
The whole focus is on growth through a multi-niche strategy that helps us add value to our clients’ businesses. We focus on travel, transportation, capital markets, banking, and have been promoting the insurance and healthcare verticals of late. In terms of horizontals, we look at enterprise solutions, testing services, business intelligence, analytics and remote infrastructure management. We will take a new assignment only if it falls within any of these areas. In the last nine years, Hexaware has grown at 22% CAGR (compounded annual growth rate) and over the last nine quarters at 7.2% CQGR (compounded quarterly growth rate). So even during the most challenging phases in the last two years, this strategy has worked for us. We have over 8,500 employees and every quarter we add 10-15 clients.
But your main markets—the US and the UK—have been badly hit...
Since 2008, the global scenario has been quite challenging. It has not yet normalized and the Western countries, where our markets get business from, have been impacted. We cannot control the global scene. But we work with clients to add more value by offshoring more, using more fixed-price projects, and reduce the risk and costs for our clients. Post the Lehman crisis, many economists cautioned it could lead to a prolonged slowdown. It made us cautious. We started refusing low-priced deals and invested more in competency and talent building. Maybe that made us less aggressive in the marketplace, but when the turnaround took place, the efforts we took in reorganizing and investing in newer areas and client mining helped us see good times from April 2010.
The tide has turned unfavourable again. And many IT companies are facing pricing pressure....
We do not think pricing is the real issue. Clients want to save costs. So we are finding other ways of doing this—like offshoring more and fixed-price deals rather than cut prices. Hexaware has had a steady offshore-onsite rate. Talent retention was a problem in 2010 when other companies started poaching from us. But today we have a 9.6% attrition rate, one of the lowest in the IT sector. If we are able to continue to add value, this should not be a worry. The real challenge is growth. Companies have cut down their investments, preparing for an uncertain global scenario. We can only hope that post US presidential elections, things will look up.
What about the impact of newer technologies like cloud, mobility, etc.?
Cloud computing can be a major disruptive factor. But a technology company should never shy (away from) these disruptive forces. Hexaware is also investing heavily in newer technologies like mobility, big data, social networking platforms. But these are not yet major growth areas in terms of revenue. The current value-add, meanwhile, is through more offshoring. This is a better way since onsite rates would typically be three times more than offshoring or a nearshore centre like Mexico (if it’s a US client). Offshoring could be to China, Malaysia, East Europe, Latin America, etc. This is a global delivery model. It all depends on the need of the clients, but the costs go up proportionately. And the clients have to be mindful of it since there are cost implications and the willingness to pay that much more.
You have often said you want to make Hexaware a $1 billion company. When do you hope to achieve this target?
Our multi-niche strategy should help us reach the $1 billion mark in the next few years.
But will your shareholders be that patient?
I have yet to meet a shareholder who is not happy. We have rewarded them with bonus shares and liberal dividends, and with consistent growth rates that have resulted in a significant market capitalization.
Periodically, we get reports that Hexaware is up for sale. What’s the story?
We are not the only company to have such rumours float around us. Hexaware has been one of the more successful mid-sized companies. So when a global company is scouting for acquisitions, it would certainly list Hexaware as a potential buy. But we are committed to run the company. We are more focused on growing it, hence one need not read too much into these rumours. We have 28% stake in the company. The rumour also stems from the private equity stakeholders. For instance, General Atlantic holds 15% in the company, but we have not heard of their intention to sell this stake so far. Meanwhile, we are scouting for a buy in the $25-50 million range and we have the cash (zero debt and around Rs.430 crore cash as at end-June) to buy such a company.
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First Published: Fri, Sep 14 2012. 08 52 PM IST
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