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"My goal is to make Geometric a US$ 100 m corporation" - Views on News from Equitymaster
 
 
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  • Mar 31, 2003

    "My goal is to make Geometric a US$ 100 m corporation"

    In 1999-2000, Geometric Software was amongst the most successful IPOs with an over subscription of over 100 times. The company is headed by Mr. Manu Parpia - a chemical engineer from McGill University, Canada and a post-graduate in management from the Harvard Graduate School USA. Mr. Parpia worked as a Consultant to Godrej & Boyce for seven years. After taking charge as the Chief Executive in the Electronic Business Division he restructured the division. While the distribution activity was spun off as a joint venture with Tech Pacific Ltd., a leading Asia Pacific IT product distributor, the software activity was spun off as Geometric Software Services Co.

    In an interview with Equitymaster, Mr. Parpia shares with us Geometric's business strategy and growth avenues going forward.

    EQTM: Geometric is focused on the niche area of CAD/CAM solutions. How has this business performed in the last year? What are the specific areas in this market you are looking at for growth in the future?

    Mr. Parpia : I think in the past one-year the environment has been challenging and has gone through cycles. In the beginning of this year the environment was good, especially in the first quarter. Post that I feel the situation changed. Especially, after all the scams in the US there was a lot of hesitation. Let me put it this way. We have reached the bottom. However, the upside is not yet fully seen.

    Geometricís long term growth is going to come from serving industrial customers and not from software OEMs (original equipment manufacturer) where even today more than 80% -85% (in the last quarter) our revenue came from. This is good because the business is pretty steady and everything looks positive. However, now looking at it we need to grow the business on the industrial side. In my view, the challenge today for Geometric remains to gain traction on the industrial side. This sector mostly is in the manufacturing side in the US, Europe & Japan geographies.

    What we see is that they are still weary of making big investments and big changes. They are facing cost cutting but they are not necessarily biting the bullet. The movement on the management information systems related to finance & accounting, even call centers has been quick. However, our business pertains a lot to the design core of the company and therefore, people are more conservative in outsourcing. Thus, I would say that we are probably in a better position for the second wave in which these areas will be outsourced as compared to the first wave.

    EQTM: Design is a vast area. What are the service offerings from Geometric? What business opportunities is the company exactly planning to tap? The second wave you talked about and what that could be?

    Mr. Parpia : Letís divide the question into 2 aspects. Firstly, What are the constituents of the markets that we cover? We cover the market of the product life cycle management which consists of 3 broad categories, one is authoring which encompasses all CAD related work, second is managing that data which is known as product data management and the third is collaboration, which is sharing that data across the enterprise doing digital visualization kind of work.

    So, that is one way of looking at it. The other way in which you can look at it is programming services and the engineering services. Programming service is taking the standard products as developed by EDS, Matrixone or PTC and modifying them, writing a layer on top of it, integrating it and doing some type of customization.

    And the other part is engineering services, which is more relevant to the authoring side. Here if you are actually doing data migration, creating a part itself or rendering Ė those kind of services. So today Geometric is only on the programming side and not in the engineering services side. And so our strategy is to concentrate on that programming side and we feel that there is a reasonable market.

    EQTM: Would Geometric, therefore, like to exclusively concentrate on the programming side?

    Mr. Parpia : I think that is the decision, which we are still pondering on. As and when we come to our conclusion, we will announce it.

    EQTM: What advantage does Geometric have over other companies offering data migration services? For example Infosys also operates in this space.

    Mr. Parpia : Absolutely, I would say that we do have our competitive edge but it is much less than what it is in programming services. But nevertheless it is an edge and the reason being that our people really understand this particular field. I am not saying Infosys or TCS donít. However, we have that edge by being focused in this area. So, I think we have that advantage.

    Let me also say we are not going to the market in the same way. The larger companies you mentioned are all focused on going directly to the market. Our strategy, on the other hand, is that we cannot afford to go directly to these big customers because we donít have the sales person bandwidth. Therefore, our strategy is to build partnerships and thatís what we are doing today. There lies the difference. So why would we enjoy success? One because of our specialization and second our market approach, which is not to tackle larger firms head on. Rather partner with their potential competitors.

    EQTM: The markets are excited about the Indian industry getting multi million dollar deals. What kind of deal sizes are we looking at in the programming side? Do you see the numbers moving higher as clients get more and more comfortable?

    Mr. Parpia : I think that in programming, the deal size will typically be smaller. On the other hand, if we as a company decide to get into engineering services, and be able to offer both then I think it would be a competitive advantage. But I think programming side by itself cannot generate the same size of continuous flow of contracts. I mean you can get a decent size may be 1/3rd of that size (US$ 10 m).

    EQTM: What makes people comfortable to outsource work to companies like yours? What do you do to make them comfortable?

    Mr. Parpia : How do you make a person comfortable to outsourcing? Firstly, you show that you are familiar with the business model. And how can you show that? For Geometric, the best way to prove the point is to show that we are working with software OEMís whose product either this prospective client is using or if they are partners they are marketing it. The point is that the prospective client is very familiar with them.

    EQTM: Geometric has been slowly moving away from software OEMís to other areas like PDM and collaborating engineering. We have seen some developments in both of the areas with Collabview being licensed out. So, how has the journey been? What are the important lessons for Geometric and how do you take it forward?

    Mr. Parpia : One lesson is that it is not easy and things donít happen as quickly as you think. Second learning is that in last September or so the quarter when we declared a loss, we didnít do our planning correctly i.e. we did not anticipate changes and did not face the reality. So I think that this is the second learning. It is better to face the reality sooner than to postpone it and put it at the back, because sooner or later it will catch up.

    EQTM: How would you rate so far what has happened?

    Mr. Parpia : I think what has happened is not entirely to my satisfaction because there have been missed steps. We anticipated, we signed an agreement with IBM. We expected to get revenues from the next quarter. However, so far the revenues from IBM were zero. As I said before, it takes longer than you hoped. So I am not happy with the progress and I think we are not on track to do what we hoped to do.

    EQTM: And how do you see this area (PDM and collaborative engineering) shaping up in the future? You were looking at lot of promise from these areas?

    Mr. Parpia : I still feel we are having a good feedback and good interaction. I see it happening. If you would ask me do we need to change that strategy, I would say no. I feel very comfortable with that strategy. My job now is to find out and spend time on why itís taking so long and see what I need to do to speed it up. So I am not re-evaluating the strategy.

    EQTM: What is the one very big goal you work towards?

    Mr. Parpia : My very big goal is how to make Geometric into a larger company. Like I mentioned in the AGM, a U$ 100 million corporation.

    EQTM: How is the onsite offshore break up?

    Mr. Parpia : Onsite offshore breakup is growing more and more in favor of offshore and that is not good in my opinion. So we are now pushing to increase the onsite component because I think for us to gain more traction, we need to have higher onsite component to be able to transfer the business to India.

    EQTM: Do you feel you have to spend considerably on selling and marketing?

    Mr. Parpia : I donít think we will be able to cut down on our marketing expenses. Actually what we have done is that we have restructured our marketing team today. Last year this time we had one person in marketing, today we have four. Now, how did we manage that without growing SG&A expenses falling out of line? By actually getting people out of USA and putting them in India.

    We in due course might increase our onsite presence as far as marketing is concerned. But I feel much more comfortable that we are evolving a proper comprehensive marketing strategy and I think its also important that we create a proper marketing plan and implement it. I mean its like outsourcing your marketing guys in the US and if the CEO is sitting here, it becomes very difficult.

    EQTM: Geometricís standalone numbers have been flat. In 1QFY03 there has been a sequential dip and 2QFY03 numbers were flat. The major growth seems to be coming from subsidiaries. Why is this?

    Mr. Parpia : The answer is very straightforward. What we said was as work got completed in Geometric for Dassualt Group of companies they would be transferred to 3DPLM. Essentially thatís what is happening. And so Dassualt itself is adding more manpower to 3DPLM. However, that means the work in Geometric has come down and as you can see its more or less flat. Actually, Geometric has been growing to compensate for that movement of work. This quarter may be the last quarter after that their maybe no more transfers.

    EQTM: How does you feel on the volume v/s prices front? How much is volume coming in and how much of the price is falling?

    Mr. Parpia : Volume growth I feel has grown by and large in the 10% (QoQ) range. One quarter higher and one quarter lower. However, price for us is not the issue. It is not that if we had given a lower price we would have grown more. However, this is not to say no client is asking for lower billing rates. I think that the price is not the driver at this stage but domain competence and knowledge are. Thatís what we are focusing on today to build up adequate resources so that we can address the opportunities.

    EQTM: Another trend we see in the industry is that a lot of foreign competency is coming in and setting up shop. Do u see any competitor in your area coming in?

    Mr. Parpia : They are already over here. When we talk of software companies, Dassualt has its own subsidiary in Bangalore, EDS has a subsidiary in Pune and PTC also has its own subsidiary. So you know from the software side I think the competition was always here, its nothing new. In the industrial side, especially programming, I donít see any yet. I think what we do is reasonably specialized. However, in the engineering services I think that people may come.

    EQTM: There has been significantly improvement in the operating margins in the past two quarters. Any particular reasons?

    Mr. Parpia : Cost controls. Going forward it should sustain, I donít see any big jump. However, we have to bring the margins higher. We committed in the annual report that we want to keep the margins and improve our return on networth and operating margins. These are our two targets.

     

     

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