“Our focus is to become pure software solution company….” - Views on News from Equitymaster

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  • Aug 16, 2000 - “Our focus is to become pure software solution company….”

“Our focus is to become pure software solution company….”

Aug 16, 2000

Mr. J. B. Jussawalla is the General Manager Finance at Mastek and is responsible for the Finance and Accounting function at Mastek and its subsidiaries. A Chartered Accountant and Company Secretary by training, he has over 19 years of experience in the Finance and Accounts function of various companies. As Head of the Finance and Accounting function, he has successfully achieved reduction in Working Capital cycle and Borrowings at Mastek, despite Mastek’s CAGR of over 60% in the last five years.

In an interview to Equitymaster.com, he spoke about the information technology industry in general and Mastek’s strategy to become complete software solution company.

EQM: The Indian information technology sector (both hardware and software) has been growing at a very fast pace in recent years. How do you see this sector performing in the future?

Mr Jussawalla : The software industry in the past witnessed a good growth rate and I see no reason why it should not grow at the rate of at least 45 to 50% per annum over the next three years.

EQM: What is the demand of the industry and what are the infrastructure problems the sector faces currently?

Mr Jussawalla : Infrastructure problems are there in the industry but over the period over time they get resolved. The government is committed to the IT industry and the things will improve further in future. Some of the major demands like tax concessions have already been met by government. It is now for the software industry to deliver. However, the one thing everyone is complaining is shortage of bandwidth. In addition, the supply of power, development and maintenance of roads and other infrastructure should also be focussed on by the Government.

EQM: There exists a large gap between manpower cost in India and abroad. How do you see the difference in manpower cost coming down?

Mr Jussawalla : The difference may not drastically come down because even overseas demand for software engineers is increasing. There will always be a gap of 30-35% between onsite and offshore projects. But the real challenge would be to get in the good people, train them and retain them. We are geared up for that. In the current year we have increased our salaries by 25-30% and we are also trying to offer ESOPs to our employees to retain the brainpower in the company.

EQM: In developed countries like the US, e-commerce has grown very fast. How do you see e-commerce taking hold in India?

Mr Jussawalla : E-commerce is really making Mastek quite strong. In the past few months we have executed many projects. We have one stock broking customer in Malaysia whose securities transactions are web enabled by us. The demand in the e-commerce market is definitely there and we see it growing quite rapidly. The critical thing is to deliver the project on time.

EQM: Currently, revenues from US constitute higher proportion to total software revenues. How do you see the risk from the same and which other countries present good opportunity to grow

Mr Jussawalla : Even if you compare other major software companies, they have as high as 85% of their revenues coming from the U.S. markets. In the case of Mastek, the consolidated revenues from US market are considerably less. However, in the future major portion of our revenues will continue to come from the US market.

EQM: Kindly state the offshore, onsite ratio and the billing rates of the company.

Mr Jussawalla : Nearly 58% of the company’s personnel work offshore and 42% onsite. Over the next 2-3 years this mix will be 70% from offshore and 30% from onsite. The offshore per hour billing rates are at a discount of more than 50% compared to onsite rate. Going forward, we do not expect the gap between the rates coming down.

Most of our projects are offshore. Initially we were into applications software and maintenance and now our focus is shifted to e-commerce projects as well as converting our existing software to e-enabled software. For example, we had worked for a Container Transportation Company where we had developed a container technique system. Now we are making their system web enabled. We had also worked for a dot com company called Cyberstate University in USA for which we did entire work offshore. In the same way VarStreet.com’s entire application maintenance work has been done at our Pune centre.

EQM: Kindly explain us the company’s business mix.

Mr Jussawalla : E-commerce and front- end solutions put together constitutes around 46% of total revenues, 15% comes from pure consulting (body shopping) and the balance from various projects like application software development.

Our product business contributes around 3-4% of total revenues. Around one and a half-year back we took a conscious decision that we would not be spending any more money on developing new products. But whatever existing products are there we will continue the same. We have tied up with companies like Vignette and we will be developing solutions using their products.

Although margins in the product business are high, risk is also high. So three years down the line Mastek will be a pure software solution provider and not a product company.

EQM: How do you see the geographical mix of the company changing in the next three years?

Mr Jussawalla : Basically the US will continue to dominate followed by UK and Germany. Last year, India did quite well but the scope in India is limited. The real action lies in US.

EQM: At present top 5 customers contribute 45% of revenues. Since one of the company’s top 5 customers is substantially scaling down its business, how will the company’s growth in future be affected. What were the reasons for the same.

Mr Jussawalla : We announced in the month of April that one of our Top 5 customers had decided to reduce the level of their business with Mastek. They are now running at around 20-25% of the earlier levels. This will affect the consolidated revenues of Mastek in the current year till December 2000. The scale down in the business was not because of any quality problem but due to restructuring of the customer’s IT budget. But we have a few major orders, which after ramping up, we feel will offset the drop that has happened in the current year. We are constantly adding new customers to diversify the business. As on June 1999 we had around 40-45 customers and as on June 2000 we have around 88 customers. Our strategy is that single customer should not have more than 7% of total revenues.

EQM: Where do you see Mastek three years down the line?

Mr Jussawalla : We will continue to grow at the rate of 40-45%, with profits growing faster than the revenues. And we will be there in all the new areas, which keep coming up like CRM, e-CRM and e-business. Mastek started catering to the CRM services requirements in 1996. We will constantly evaluate new solutions and new technologies.

EQM: Any companies that you admire

Mr Jussawalla : The companies, which I admire, the most are Infosys and HLL, which have really done well in the past few years due to their solid management and ability to grow.

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