The company is aiming for profit margins of around 15 percent over the next few years.
In an interview to CNBC-TV18, Sriram Rajaram, President, Strategy and Corporate Development, Cigniti Tech spoke about the company's business outlook. The company is targeting revenue of around USD 300 million over the period of next three-four years.
Cigniti Tech’s margins currently stand at 12-13 percent. The company is aiming for profit margins of around 15 percent in the next few years.
Below is verbatim transcript of the interview:
Q: Since you are such a niche company, can you start by apprising our viewers in terms of what your core business is and where you stand in terms of market share globally as well as in India, who your key clients are and which are the geographies that you serve?
A: We are specialised, independent software testing services company and today we are the third largest independent software testing services company globally. By end of this year we expect to become the second largest independent software testing services company globally.
In terms of market share it's a highly fragmented market, so the exact market share is a very small percentage point but beyond that, the industry itself, the software testing niche within the IT industry is growing at a very significant pace. It is expected to grow at much faster pace than the overall IT services and we are a leader in that space and that's really helping us win lot of clients.
We are today present in multiple geographies. We are there in USA, Canada, UK, Australia, New Zealand, Asia Pacific as well as South Africa.
Q: Is it true that the company wants to get revenues of USD 300 million in FY18 compared to USD 43 million that you clocked in last year and how will you achieve this aggressive growth rate?
A: Last year we did about USD 43 million or about Rs 260 crore. The first half of this year we have grown 41 percent when compared to the first half of last year and we expect to grow further than that in the next two quarters.
We expect that we will continue to grow at a very fast pace over the next few years to clock about USD 300 million in the next three to four years time frame. Some of that growth is going to come because of geographic expansion. Till last year most of our revenues came from USA but this year onwards lot of our revenue growth is happening in Europe, in UK, in Asia-Pacific, in Australia, New Zealand and other geographies.
We believe that a combination of organic growth as well as some inorganic acquisitions that we will target over the next few years will also help us to get to that USD 300 million mark in the next three to four year time frame.
Q: Can you take us through whether you have any plans on the inorganic front and if so also your balance sheet details in terms of cash as well as debt on books?
A: In terms of inorganic growth, we are constantly talking to and evaluating companies that will either help us add new capabilities or help us address new markets or help us get new type of clients in terms of specific domains. So, this is something that's a constant activity and therefore we believe that over the next few years we will be looking at acquisitions around the globe - that is one.
In terms of debts we are a nil debt company and in terms of positive cash flows we have recently also raised some money through a preferential issue, about Rs 65 crore - that will form a war chest for us to help us make these acquisitions as we go along.
Q: Along with this USD 300 million revenue target have you outlined margin guidance? Currently, you would stand close to about just 9-10 percent mark. How much would you like to scale that up to in the next three to four years and how will that come about?
A: Right now our earnings before interest, taxes, depreciation and amortisation (EBITDA) margins are about the 12-14 percent. However, this is on a very fast paced growth where we are sacrificing margins for growth because we are front loading lot of the investments that basically reflect in our OPEX.
Once we cross the USD 100 million threshold mark sometime next year, we believe that our EBITDA margins will be closer to 20 percent mark and the profit after tax margins will be closer to 15 percent mark. This will be because of couple of levers that we have – (1) our overall selling, general and administrative expenses (SG&A) as a percentage of investment will come down (2) our billing rates and our utilisation will go up and all of this will help us actually improve our margins going forward.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.