Fund Keystone acquisition via internal accruals; to be EPS accretive: Zensar Tech

Keystone already has been growing at 20 percent, with EBITDA margins around 30 percent, so we expect the acquisition to be EPS accretive from the first year itself, said Goenka.

According to MD & CEO Sandeep Kishore the company already has USD 50 million in cash and so the acquisition would be funded through internal accruals. The company would be open to more acquisitions going forward, he added.

Below is the transcript of their interview

Sonia: If you can tell us more about this acquisition, what does it bring to the table, how much have you paid for it and how have you managed these funds?

Goenka: Keystone is a company which is headquartered out of Bangalore and also out of Atlanta in the US. It is primarily in the warehouse management and order management capability.

We have been looking at increasing our portfolio in the retail space. We earlier acquired a company which was primarily in terms of consumer interface UI / UX, this was the company in London called Foolproof. Then we acquired a company called Professional Access which helps you do actual e-Commerce and buying of the product.

Now this acquisition completes the entire suite whereby we help in terms of order management and warehouse supplies. So, it is a play that we are trying to do in the retail space and primarily in terms of digital e-Commerce.

Reema: What has been the historical growth rate in terms of revenues for Keystone and the kind of margins you will enjoy?

Goenka: Typical growth has been around 20 percent every year. EBITDA margin has been around 30 percent or so. The acquisition should be EPS accretive from first year onwards.

Sonia: Can you tell us what the funding process will be, what is the cash on the books that the company has currently and would this acquisition be funded entirely through cash?

Kishore: It will be funded entirely through our internal accruals. We have approximately USD 50 million of cash on our books and we will be able to fund this fully from our internal accruals only.

Reema: In the last six months this has been the second acquisition and now the cash balance in the company’s books post the acquisition would have dwindled quite a bit. Should we expect no more acquisitions from Zensar now?

Kishore: We have always said that we are an acquisitive company. We are pivoting our organisation on digital. We have talked about return on digital as our key process and methodology of going to market and we are continuously looking to enhance our competency and capability in our chosen market space both in US, Europe and in Africa as well. So, we will be acquisitive.

Sonia: You started off by saying that you are looking to increase your presence in the retail space and digital is a big avenue for companies like yours, can you tell us over the next 2-3 quarters what kind of growth are you seeing overall from this segment?

Goenka: We see a growth of around 15-20 percent in our retail space. Today 24 percent of Zensar’s turnover comes from retail. We service a large part of the Fortune 500 companies who are in the retail business.