Earlier this week Birlasoft, the CK Birla Group's information technology (IT) services company, and Pune-based KPIT decided to create two companies, one focusing on digital business and the other on automotive engineering and mobility solutions. Anjan Lahiri, currently the chief executive officer of Birlasoft would head the former entity, to be also known as Birlasoft, as the CEO and managing director. In an interaction with the Business Standard, he talks about the why of the deal. Edited excerpts:
What really triggered this merger?
As the world is becoming much more competitive, customers are also demanding specialisation. In earlier days, operations was important for customers; today capabilities and specialisation are important for each company. If you look at KPIT, it has a very large IT services business and a smaller focused automobile engineering and mobility one. Their founders are actually much more auto-focused. We have put together a management team at Birlasoft which are focused on IT services. So, combining the IT services strength of both to make a $500-million business and a focused IT engineering business make sense.
What are the complementary strengths each company brings?
KPIT is very strong on the ERP (Enterprise Resource Planning) side. Birlasoft is very strong on the digital and application development side. Combining, we can go to the same segment and sell more things to the same customers. And, at Birlasoft, we have a very strong consulting and solutioning capability, apart from expertise in verticals others than automobiles. So, it makes a huge amount of sense to be able to merge the two.
No overlapping of customers?
None, which is very interesting. We looked at their customers and very few of theirs do business in engineering as well as in IT. From my experience, I can tell you that very few customers give business to both engineering and IT. The customer segments are different and operations of companies (in these) are different. So, it makes sense to separate them.
What digital capabilities does Birlasoft have?
If you define the different constituents of digital technologies, which include analytics, cloud, Big Data and all, we derive 30-35 of our revenue from these segments put together. But, if you only talk about machine learning, robotics, etc, almost every company derives a small percentage of revenue from those. On top of that, we have strong consulting capabilities. I myself come from a consulting background and Dharmender Kapoor, our operations head, was the head of consulting at HCL Technologies. Because, technologies keep changing and customers need to know how to pull those to serve their business needs, there is greater demand for consulting today. And, almost the entire Birlasoft growth has been led by consulting-led wins.
Once KPIT’s IT services business is merged with you, will you be able to maintain the digital revenue share at more than 30 per cent?
They (KPIT) also do a lot of digital work. Particularly because they are very strong on the auto side, they have strong capabilities in IoT (Internet of Things) and machine analytics. So, it will only strengthen our digital story and also allow us to access a segment of customers that were not there before.
In digital, finally, the data is sitting in core ERP. So combining the two, we believe we will be a formidable enterprise digital company. I say enterprise digital because there is no other company for which such a large share of revenue comes from the enterprise software. For most companies, 50-60 per cent comes from application development and maintenance, 10-15 per cent from ERP and the balance from infrastructure. Whereas, almost 60 per cent of our revenue will come from ERP. And, combining the two, we will be the most formidable enterprise digital company.
Given the focus on these high value segments like consulting and digital, how is your revenue productivity?
It’s our intent to grow above the industry standard but it will take a bit of time to settle down. We absolutely believe we can produce above-industry growth.
In which verticals do you want to specialise more? You said the market was looking for specialists rather than generalists.
We see industrial manufacturing as a very important area for us. We are getting a lot of traction in media, and also in banking and capital markets, treasury and loan systems. We are getting a lot of traction in these verticals, in addition to others. Overall, if you look at the global economy, it’s in very good shape. All the verticals are doing well. We will keep growing in all other verticals.
What will be your combined strength once the merger is complete? Any employee rationalisation?
We will be a $500-million company, with around 10,000 people, with large centres in Noida and Pune. On rationalisation (layoffs, trimming), we are all serving customers and, so, there is no question of any rationalisation. Employee rationalisation in M&A (merger and acquisition) mostly happens for the top management, including the chied executives. Because of the way the companies are being split into two different ones, we all have complementary positions in both.