Zensar Tech expects arm to contribute Rs 100cr in Q4

Ganesh Natarajan, deputy chairman and MD, Zensar Technologies, in an interview with CNBC-TV18 spoke about the latest happenings in his company and his sector.

Below is a verbatim transcript of his interview with Gautam Broker and Sonia Shenoy. Also watch the accompanying video for more. Q: How does the third quarter look like this time? A: It is difficult to comment on the third quarter as you know we are currently just close to our board meeting. Overall, if you look at the trends in the market, we have been extremely good. Our principal markets are US, Europe, South Africa and Japan where the growth has been good. Plus of course our very significant acquisition - a USD 100 million company in Boston which is really our sweet spot. We are very excited about how the future will pan out over the next two years. Q: So by when do you expect the integration to be completed? A: We are working on a 100 day integration plan. When you say integration, if you look at this model, we are looking at what we already do - remote infrastructure management supported by a very strong Europe and US presence. It is really a collaborative model. The actual integration, the closing list happened December 31. Everything is going well in terms of synergies that we expect to exploit and of what we have seen between the two companies. Q: Tell us a little more about these PSI Holdings that you completed the acquisition of, Akibia, a company that is under this particular group has significant amount of presence in the IT services space. What more can you tell in terms of how this would add to your profitability or any kind of monetary uptick that you are expecting in the next couple of quarters? A: This is a USD 100 million company. Clearly in this fourth quarter, we would expect to see close to Rs 100 crore of additional revenue. It completes the value proposition we have in infrastructure management (IM). IM is the fastest growing sectors in the global outsourcing space. So our ability to offer a fully dual shore model, where you can provide support, desk side support for American clients in the US or in Europe as well as support some of their data centres and their security concerns, come in offshore methods. Apart from some of the very large companies including IBM and HP, we are probably one of the few companies which should have this very complete story. It gives us a lot of excitement that it will enable us to really become a dominant player in this space. Q: Did you mention Rs 100 crore in the next couple of quarters? A: This is totally a USD 100 million company. So I am just saying roughly Rs 400 crore in the full year. In this quarter, we will probably see another Rs 100 crore addition to our revenue, in our topline. Q: From the existing clients scenario hearing on any clients' budgets being finalized, what is the feedback been from the US and European markets? A: Currently, it is mixed because a lot of our clients are doing extremely well in spite of the recession. They are clearly looking at a lot of pent up demand being released, so that is good. There are a couple of clients who are not particularly doing well in terms of profits. Probably, we will have to be watchful there in terms of growth of business with them. But overall, if you look at new clients, they are coming in at higher rates than they were there in the past. For existing clients, there are no real rate reductions anywhere. I am pretty sanguine about the fact that we will get not only more revenues but better margin revenues going forward in the next two years. Q: So in terms of margins, you had one issue that was wage revision in the last quarter, what are you targeting? By how much more do you think your margins could improve? A: We are not looking at margin improvements. We had a phenomenal year last year and obviously the acquisition we have done will depress our margins to a certain extent for the next three-four quarters. But broadly which I have always maintained over the last five years; maintaining a double-digit profit after tax, what our horizon is. Over the next two-three years, given rate increases which will compensate to a large extent for cost increases here plus the fact that the acquisition if done, it will progressively improve our own margins, thanks to offshoring. These two will probably contribute to a very successful year and an on-going margin story going forward. Q: What does this duty of balance sheet we understand you had about Rs 117 crore in cash at the end of Q2, I assume there would be some leverage now at the balance sheet? A: We had never been shy of taking debts wherever required. We are negotiating a fairly good debt in the US because it is a US acquisition. That is the combination that we will do. Q: In terms of debts, can you tell us where the debt levels currently stand at in FY10? If I am not wrong it was about Rs 50 crore or so? A: Yes, it was Rs 25 crore plus and that is being retired at this point of time. So we will be very comfortable in terms of debt.