Q&A: Ganesh Ayyar, CEO, MphasiS

MphasiS, the information technology and back-office services provider, has seen many management changes in the past two years since EDS bought it. Later, EDS was acquired by HP. Access to HP’s global channel seems to have set it up for a likely crossing of $1 billion in revenues this financial year. Ganesh Ayyar, CEO of the Bangalore-based company, discusses this and other matters with Bibhu Ranjan Mishra. Edited excerpts:

Your second quarter results reveal that growth is back.
For six quarters in a row, we have been delivering growth above the industry average, profitable growth. But, we are already three weeks into the next quarter. So, the focus is on the current quarter (June-August). We have $293 million cash, compared to $12 million in the beginning of 2009.

Will you be able to achieve $1 billion in revenues this fiscal?
I am hoping to .. let's see. In the first six months of fiscal 2010-11, we reported revenues of $527 million. In the second quarter (Q2) we have done revenues of $270 million in dollar terms. So, clearly, the annual run rate is in the range of $1 billion.

You are part of the biggest IT firm (HP), which makes a significant difference.
Of course, the HP partnership is important to our success. Roughly, close to 60 per cent of our business outside comes in partnership with HP. So, that's important for us and a major reason for our success — no question about that.

Will over-dependance on HP for clients affect MphasiS’ ability to stand on its own feet?
First of all, as we are a very, very small company, we are incapable of going after larger deals. So, we are better off working with HP. Similarly, their access and footprint is much bigger in terms of market access. They are very strong in certain verticals. The critical factor for our success today is our partnership with HP.

What's the mandate from HP? How do you approach clients through the HP channel?
HP does not give a mandate, one way or the other. We have a masters' services agreement, based on which they can come to us; they don't have to come to us. We have common markets where we work with them. We enhance their value propositions in certain areas because we have got capability and the track records. This gives confidence to customers to go ahead. When the deal closes, salespersons from both companies get the credit.

But, this can affect your own sales capability?
The question is not 'this' or 'that'. From my point of view, they (HP) are not competing channels; they are separate. Over the past six-eight months, we have been investing more and more in sales and solutioning. We are also focusing on growing in newer geographies. India is one example where we have built an entire sales and solutioning team. Of course, it takes time — from the moment you build, to the time you close the deal. We have also increased our footprint in other parts of the world.

Any traction from the Indian market?
It's quite early, but the pipeline is building. Because, typically from pipeline to conversion, the sales cycle is anywhere between six and nine months. At least in the first stage, the pipeline is looking reasonably good.

In the post-global slowdown phase, while the deal flows are back, the pricing pressure seems to be there.
Pricing pressure is definitely there for all of us. Some people probably don't talk about it. I don't think the IT budgets for CIOs are going to rise. If they will not rise, they will obviously look at pricing or productivity gains. Ultimately, there are people who are looking for more from less. So, that's what is definitely there today and I don't think it will ever go away.

People say pricing pressure is more for MphasiS because of the clients added through the HP channel?
Not at all. HP is going to the same market where we are going. So, I don't think pricing pressure is more here or less there. And, of course, we need to continue to re-invent ourselves to deliver more. We have to think, how do we keep margins constant and continue to grow, despite the pricing pressures.

How is the deal conversion cycle? Has it improved?
A typical sales cycle average about five-six months. During the economic crisis, it went up to nine to 12 months, as lots of projects were on hold. We are now back to the normal cycle. Of course, we have to win these (deals) profitably because only when you are profitable, can you continue to serve customers well.

Which segments (verticals) look promising now, post-Q2?
Telecom has been a growth vertical for us and has grown well. We are also seeing many client additions in manufacturing, retail, healthcare and pharma, logistic and airlines. In the second quarter, our revenues from banking and financial services have come down a little bit, but that is nothing unusual. The pipelines look healthy.

There seems to be a missing link between your revenue growth and headcount.
In the second quarter of FY11, we grew 2.4 per cent on quarter-and-quarter basis. In the same quarter, we added 1,500 people, the growth of which is more than our revenue growth. Non-linearity is the goal, but you can't effect quarterly changes based on the non-linearity. We plan to hire about another 3,500 people in the current quarter.

You have healthy cash reserves. What is your acquisition strategy?
Our approach is going to be a string of pearls. We will look for acquisition targets in a revenue size of $30-50 million. And, it has to be in areas of strategic importance. We would not rush for an acquisition because it is available. We have identified areas like banking, capital market, insurance, healthcare, telecom, ITO, portals and usability engineering. We would like to move up the value chain in banking. We, clearly, would look at enhancing the competency at one hand and looking at whether we can move up the value chain and platforms.