Why will promoters exit if we double revenue in 5 yrs: Mindtree's Natarajan

Dismissing reports on Mindtree promoters looking for an exit via stake sale, the company's Executive Chairman Krishnakumar Natarajan says they were in for a long haul. Natarajan, also a co-founder, tells Debasis Mohapatra in an interview that though the firm does not have much control over financial investors like Nalanda Capital and V G Siddhartha (promoter of Café Coffee Day), there won't be any disruption in the functioning of the firm in case the promoters decide to exit. Edited excerpts:  

IT mergers and acquisitions seem to be on the rise. Do you think consolidation is the way forward?

iGate was bought by Capgemini and then Syntel was bought by Atos. The common theme was that both the firms were European players vying to get a strong footprint in the US. If the Indian IT industry is constrained with a growth rate of 7-8 per cent now, these players are even worse off, with 1-2 per cent growth rate. So, I would see this as the European IT industry getting a hold in the US market through acquisitions. In the Indian context, if you say all the big IT players are sitting on a lot of cash and should ideally buy midcap companies, this may not happen. Because there are cultural differences, integration issues, and unlike manufacturing industry, you don't get a clear scale benefit here.

Reports suggest Mindtree promoters may be looking at selling stakes. One big investor, V G Siddhartha, has exited the board...

When there is transformation in the fundamental business model of an industry, there will always be a new set of winners in the next round. And, frankly,  we believe that we have a fair chance of being one of those winners in the next five years. That is what motivates us to be there and work together to realise this dream.

There are two ways of looking at it. Someone offers us (promoters) money and we sell out and go. That will happen if we don't know what the way forward is. But when you have a probability of being a leader in the next five years, the motivation is different. 

Mindtree is going to be a billion-dollar (revenue) firm in next three quarters. There is a reasonable chance that if the company continues to grow even in low double digits, revenue will double in the next five years. Market cap can also, potentially, double. And when you are confident of attaining this, why will you leave? And what are the opportunities outside from where you will get 17-18 per cent IRR (internal rate of return)? So, when there are enough economical reasons with a decent probability of creating a legacy, there is no motivation to sell (stake) irrespective of how much people offer. 

Is complete buyout a possibility?

Certainly not. Somebody might say that there is a billion-dollar company which is well-run and they have all the capabilities; so why don't you buy them. But, when you are clear that's not the way, you don't encourage that discussion. 

After Siddhartha left the board, the market perceived he might have lost interest in the company. Against this backdrop, do you see financial investors offloading their stake in the future?

This perception is natural for outsiders who don't know the company. In Siddhartha's case, he is running a listed company. To be fair, he tried his best to be on the board. But then running a company that is at a growth stage and being a part of the board of the company where you need to commit certain number of days is not an easy task. You have to also see the other aspect, which is the kind of trust he has on the management. He understands that the management will not do anything that will harm him as a 20 per cent shareholder. Also, he is accruing 20 per cent of Mindtree's profit every year, which is not small. We will be generating Rs5-6 billion in profits every year. So, he certainly doesn't have any intention of selling out. At the end of the day, he is also running a business that requires a large amount of capital. But what we are absolutely clear about is that he will not do anything that will harm the company. He will not say that tomorrow I am going to sell 1.5-2 per cent of my stake and bring down my stake. He will say that I am going to raise this amount and what can we do. It will be in a well-coordinated way and will certainly not be a surprise for us.

But that can be one of the possibilities?    

With investors, one can never say that it's not a possibility. There is nothing that is permanent when it is a financial investor. Nalanda Capital has been with us for 10-11 years. Do we anticipate that they will be with us for next 20 years? Again, it holds a fairly reasonable chunk of around 11 per cent (in Mindtree). But the fund has taken money from various endowments, which it has to pay back at some point of time. But when it does that, we will know a couple of weeks ahead. So, we will do it in a very structured manner. What I want to point out is that whenever these things happen, it will not impact the company.