Glodyne has more buy plans post Comat, but not for now

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Technology infrastructure management services provider Glodyne Technoserve recently acquired Comat Technologies. In an exclusive interview with Moneycontrol.com's Chikita Kukreja, its chairman and managing director Annand Sarnaaik talks about the deal and the road ahead for the company.

Here are experts from his interview on Moneycontrol.com. Also watch the accompanying video.

Q: What was the rationale behind the Comat Technologies' acquisition?

A: Glodyne has been working in the e-governance space and taking initiatives in a lot of socially- driven programmes. Fortunately, working predominantly in the similar space, we have good deep domain knowledge in the sector. In fact, in one of the largest state like Karnataka, we have done public distribution system work to enable more than a million families.
 
This acquisition was a two-pronged strategy. One was backward integration which helps to execute lot of large programmes which are already in the execution pipeline. And, also on the frontend, we would be able to ride on our financial inclusion strategy on our exiting contracts like UID-based kind of programmes.

Q: So how vast do you think e-governance market is?

A: When we started some three years back working in NAREGA, their disbursement mechanism was just Rs 10,000 crore. Today, in two-and-a-half to three years, the government has increased to more than Rs 40,000 crore of disbursement only in one programme called NAREGA and the public distribution system and various other social-driven programmes. Also, there are some noble programmes like labour management system which is one of its kind in India, which is involved in creating a new budgeting system for this particular sector.

Q: This deal with Comat Technologies, it's an all cash one?

A: Yes.

Q: Will you be able to give us the value of the acquisition?

A: We have not announced the value of acquisition but it was an all-cash deal and it was slightly combined with lot of various other instruments, so that is the reason it's all cash.

Q: How are you funding this acquisition?

A: All through our internal accruals.

Q: So you are not raising money at all?

A: Not at all.

Q: From getting listed in 2005, how much has Glodyne grown?

A: In 2005-2006, we were a Rs 87,000-crore company and recently we closed our revenue size of Rs 1,750-crore. As far as CAGR for the last three to four years is concerned, it has been more than 55% and the growth has been extremely exponential. It's been a combination of large organic deals, lot of large inorganic deals. So put together our strategy has been two-pronged.

Q: What about the debt situation?

A: Till last year, we were a very low debt company. But, after the decision of acquisition, we hold a 1:1 debt equity ratio.

Q: So your comfortable debt-equity ratio, would be 1:1?

A: Absolutely, yes.

Q: For FY11, the fourth quarter, your company reported a net profit of Rs 42.60 crore. So what is your target for this quarter?

A: Speaking of last quarter, we have taken a one-time hit, as a Rs 6.5 crore from erstwhile companies' subsidiaries where we as a board have taken a very conservative view of taking a temporary right on that particular issue for their subsidiaries. So we will see a good amount of upside from Rs 42.60 crore from the profitability perspective. We don't give profit guidance, but as far as the revenue guidance for the year, we have already given Rs 2,195 crore kind of revenue guidance.

Q: How much would that be in percentage terms?

A: We would be growing almost 30% plus revenue on organic basis.

Q: What are you doing to achieve this target of Rs 2,200 crore?

A: As I said Comat happens to be one of the strategies. We have lot of orders in hand and we need to execute that seamlessly to recognise their avenue, so sometimes we put efforts from our strategic perspective to do that and we are reasonably confident and sure we will recognise.

Q: What does your order book look like?

A: Our guidance speaks what we will be able to do because in an infrastructure-managed services play what is the visible order book condition and what we will be able to execute out of that because they are multiple-year contracts and some are annuity-based contracts.

Q: What regions do you cater to? Do you have clients in the US and the Europe as well?

A: We have taken a good shape in India and we have been better than last year. After our large-size acquisition of DecisionOne last year, today we constitutes almost more than 40% of our revenue comes from Northern America which constitutes of America and Canada and almost 59-60% of our revenue comes from out of India.

Q: With CLSA downgrading the Indian IT sector, do you think that's going to affect your revenues as well?

A: No, Not at all.

Q: And why would you say that?

A: Our business model has been so exuberant, unlike any other IT company where most of the revenue comes from a capex-like revenue growth and whenever there is a disturbance in the economy, they need to string their capex budget. Our business model is more OPEX-driven and the client would not be really able to curtail the operational expenditure of their expenses. And then the cost pressures further more accelerates our revenue growth and to really cut down the OPEX cost as well. So that makes us further more confident about our step to really see a further growth.

Q: Are you eyeing more acquisitions?

A: M&A is a integral part of our growth strategy and we keep looking at it and when we come across a strategic foothold we go and initiate a value deal.