Mid-cap IT product and services firm, Persistent Systems, expects 15 per cent of FY17 revenue coming from its alliance with IBM. While Anand Deshpande, MD & CEO, Persistent Systems agrees that IBM as a client will mean big revenue, the company is already working on similar such alliances. In an interview with Shivani Shinde Nadhe, he talks about the recent restructuring of the company and its impact, business growth in FY17 and acquisitions. Edited excerpts:
Before we get into the analysis of Q4 numbers, could you please explain the rationale of the restructuring and the impact of the IBM alliance on the numbers this quarter? We thought that it would be meaningful to define four clear units with each focused on their deliveries and business. Within the four our alliance with IBM is fairly significant. It will add 15 per cent to our revenues. Compared to last year's numbers, 15 per cent would mean $50 million.
There are two aspects to the alliance: One, we are investing in the creation of continuous engineering product. Two, this will give us access to a large number of customers of IBM and Last we will be setting up centres in Israel and Mexico.
The digital focus will mean focus on IP as well as partner eco-systems like Oracle, Sales Force and Microsoft. Our traditional business will now come under the services segment.
What has the impact of this alliance been on this quarter's numbers? We grew 12 per cent this quarter. Almost 8 per cent came from IBM which would be roughly $8 million. The rest of the growth came from our IP business, which has seen a significant amount of acquisition.
We have also stated that the impact of the alliance will be evident on margins.
We have guided that the IBM will have an impact of 200 basis points on margins. If you see this quarter our margins were impacted 220 bps due to IBM.
Revenue growth the last few quarters has been lumpy. With the IBM deal, do you see more consistency now? No. We think volatility in growth or lumpiness is the new normal. Rather IP led and product business will continue to be lumpy. Rather the IBM deal would be similar to the growth dynamic that IBM reports.
What is important, I feel, is that fact that we have to give a set of numbers to the street on a quarterly basis. However, we cannot run the whole business on quarterly basis but look at trends and what is coming in and take appropriate call.
We are also making some changes in the way business is changing for us. So if you notice this quarter we have done away with sharing onsite-offshore mix. We think as the business matures the more apt parameter would be revenue utilisation per person. This is important as we are not just selling services, but focus has shifted to IP, products etc.
We are also looking at other deals like IBM that can be worked out in future.
How do you see growth in FY17? We think growth will be good in the IBM alliance, and digital front. We expect services to be softer, but that's by design as well.