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Growth story of a youngest billionaire

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CIOL Bureau
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Looking ahead, the company sees big potential on the large deals front. Satyam has set a target to achieve $1.45 billion in revenues by March 2007, says Vadlamani, the chief financial officer of Satyam, in an interview with Priya Padmanabhan and Kishore Kumar of CyberMedia News. Excerpts:

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Satyam recently clinched part of the $145 million Qantas deal. Are you expecting more such big deals in future?

Recognizing the fact that this is an emerging opportunity for us, we have constituted a Strategic Deals Group (SDG) headed by Hetzel Folden. Since the creation of this group, our presence in large deals has increased. We have ensured that we participate in almost all large deals. The issue is not whether we win the deal or not. The first step is to participate. We took part in around 24-25 deals over the past one year and have won four.

As Folden says, the opportunity in large deals is four times higher compared to a year ago. Satyam with its size and visibility is in a good position to capitalize on this opportunity. Before Qantas, we won the Nissan and General Motors deals. We define anything above $50 million as a large deal.

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According to analysts, the size and value of large deals are coming down. Customers are also going for multiple vendors rather than a single one. Is this working in your favor?

Even with large deals, there is no single vendor. For example, if you look at the GM deal, it involves not just Satyam. Out of the $7.5 billion, we got only $150 million. GM has also signed up with EDS, Capgemini, HP and Accenture. From a de-risking perspective, it makes sense for the customer to depend on various vendors rather than a single vendor. They try to spread it unless the volume of outsourcing is so low to depend only on a single vendor.

How are you trying to get better margins from your deals?

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On the margin front, our philosophy is to see that the life of margins remains stable. In the initial couple of quarters, there could be margin pressure because there could be issues like knowledge transfer, higher costs due to people traveling onsite and higher salaries. Over a five-year period, our mandate is to ensure the large deals are not margin diluted. As a company we make a margin of 24 per cent or so.

What do you expect from engineering services?

Engineering services is an emerging area. The Booz Allen/Nasscom report says that there is a huge potential and today, the total exports from India is $1.5 billion. They expect this to touch $50 billion by 2020. Satyam is well poised to take advantage of this opportunity. In terms of engineering practice, Satyam has the largest practice after TCS. Six to seven per cent of our revenue comes from engineering services. Around 2000 people are engaged in this business. We are in a very good position because of our experience of working with GE. Then of course, there is our experience of working with TRW, Bombardier and others. Working with these customers has really given us the edge.

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What are the new areas that you are investing in anticipation of better revenues?

From the vertical point of view, we have maintained our leadership position. But from the growth point of view, we are looking at telecom. What we have done is classify verticals into mature, growing and emerging. Telecom is among the mature verticals. Among the growing and emerging verticals we have retail, travel, transportation and logistics, energy and utilities, and healthcare. These are the verticals we have identified for investment.

Coming to technology-wise investments, it would be application development and maintenance services (ADMS) Today, 50 per cent of our revenue comes from ADMS. That is going to be our bread and butter business.

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Are you looking at acquisitions in the future?

Yes. Acquisitions are an ongoing initiative. We started it almost a couple of years back. We have a dedicated team working on it. We have already made two acquisitions. We are not in a tearing hurry to acquire a company. There are various cultural issues attached to it. Satyam’s philosophy on acquisitions is a string-of-pearls approach. First we want to paint the bigger picture and identify the gaps in the picture, and fill those gaps with acquisitions. When we needed to scale up our business intelligence expertise, we acquired Knowledge Dynamics. When we wanted to better our BFSI segment and also our European presence, we acquired Citisoft. This continues to be our strategy.

Which are the areas where you want to carry out acquisitions?

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From a geography point of view, Europe and the US are regions where we are looking at acquisitions. In terms of the kind of companies, they would be niche, boutique players with 50-100 employees and not big ones. They should help us with customer acquisitions.

What is your currency hedging strategy?

Our strategy is to hedge 50 per cent of expected dollar in floors over the next 12 months. That is the strategy approved by the board. In terms of number that translates to between $300 million and $350 million, depending on the turnover we do. We try to follow this. Currency is something which nobody has got control. The philosophy is neither to make losses nor make money here. So the Board says that we are not here to make money out of Forex. We just want to protect our interests. We don’t want to lose out. So the obvious choice will be 50:50. That way we are evenly hedged. So when the rupee depreciates or appreciates, we will neither be benefited nor hurt. We are looking at a balanced view.

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There have been frequent rumors about IBM seeking some stake in Satyam. How far is it true?

There is absolutely no truth in that. There is no truth at all. This is just a market rumor.

But can there be smoke without fire?

I agree. But in this case that theory will be proved wrong. There are always exceptions. The reason for this rumor could be IBM’s announcement that they would invest $6 billion in India.

There was talk about the US economy slowing down again. Are you diversifying your risk by going to other markets?

Our de-risking strategy is not linked to this slow down. But our strategy started almost three-four years back. We have de-risked on the geography and customer front. At that time, our revenue from the US was around 85 per cent. Today it came down to 64 per cent. Europe used to six per cent. Today it is 18 per cent. Similarly APAC used to be almost zero. Today it is 17-18 per cent.

If you look at the configuration of our top customers, they used to account for 22 per cent of our revenues. Now the top customers contribute around six per cent. Similarly, the top 10 used to contribute around 55 per cent and now it is 44 per cent.

During the same period, we had around 50 million-dollar customers. Today, the number stands at 155.

© CyberMedia News

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