Q&A: Anand Deshpande, Founder chairman & MD, Persistent Systems

Typically, outsourced product development (OPD) services companies are small players, chasing small deals, though they serve a large number of customers. Despite addressing a niche segment, OPD companies are seeing global uncertainties and the financial crisis in the US affecting their business. Anand Deshpande, founder chairman and managing director, Persistent Systems, one of the leaders in the OPD space, talks about the opportunities and challenges in an interview with Bibhu Ranjan Mishra. Edited Excerpts:

How does the OPD space look like, given the economic uncertainties in key markets like the US and Europe?
Most clients are quite concerned about the global economic uncertainties, especially after the US credit downgrading. But nobody really knows if this could lead to a double-dip. In such situations, people don’t usually make long-term decisions easily. They tend to make short-term commitments for three months or six months, and continue to review it from time to time.

 

Are you seeing clients freezing decisions?
Unlike 2008, when decision-making was frozen for almost six months, things are much better now. We just have to live with this kind of a situation for a long time to come, because this is not something that is going to change in a short period.

How does it impact your kind of business?
We are seeing a mixture of things. On one side, there are certain customers who are clueless about their next project. At the same time, we have customers who are in a hurry to execute their projects for products already sold to customers. So, the volatility in business is very high. This works well for companies like us, since we provide flexible staffing for companies.

Everyone says opportunities in the OPD space are huge. But why are most OPD players small in size?
The kind of business we (OPD players) do is different from IT services firms. We work with a large number of customers, since the deal sizes are not as big as they are for IT services firms. Even a contract worth half a million dollars is a big deal for us.

What is the maximum revenue you derive from a particular client?
My biggest customer contributes about $25 million per year. But for that customer, we are implementing a number of projects.

Do you think cloud computing would boost the OPD industry?
The whole movement around cloud computing is expected to aid the OPD industry. The world is moving to a time when you would have more front-end devices, like tablets and cell phones. This would trigger the demand for applications, which are typically smaller products and are ideal for our kind of business.

Lately, you have been quite aggressive in inorganic pursuits. What is the strategy?
Our acquisition strategy is not just to add top line or bottom line. We want to be seen as thought leaders in certain areas. We have focused on four technology theme areas—cloud, analytics, collaboration and mobility. We are looking for small, niche technology-focused companies which have good front-end skills, as possible acquisitions.

What is the size of companies that you consider possible targets?
We don't have a fixed budget for these. We have a healthy cash reserve of about Rs 300 crore. Besides, we generate about Rs 10 crore of free cash flow every month. The acquisitions we made in the recent past were not very expensive because our strategy is to use these to enable us to carry out end-to-end business.