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    Alliance with IBM to give 15% boost to revenue on Y-o-Y basis this year: Anand Deshpande, Persistent Systems

    Synopsis

    "I think there are definitely large opportunities for growth for the company, if you look at it in the long term."

    Peristent Systems does not have a lot of presence in the UK, and as such, are will not get much affected by Brexit issues, says Anand Deshpande, MD & CEO of the firm. In an interview to ET Now, Deshpande states that his company's alliance with IBM will result in boost to revenue. Edited excerpts:

    ET Now: Let us start with the the Brexit vote. I know you have a large US exposure, but just wear your IT sector captain hat and tell us, if indeed there is a Brexit, do you think there could be substantial implications for Indian IT space, which has got anywhere between 10%, 15%, 20% revenue presence in the UK and EU?

    Anand Deshpande: Yes. I think we do not have a whole lot of presence in the UK, so, we are not directly affected by the Brexit issues as such. But any time there are changes of this kind, there are issues that will have to be sorted out, specifically around immigration and sort of laws around visas might have an impact with Brexit.

    Let us see how those come out. Any time there is this kind of change, of course, there is a need for redoing technology. So that impact should be positive for IT companies. So either case, people will have to fix systems and focus on growth and that will require next generation of IT to be deployed. That should be the good news part. Let us see what happens to the currency numbers. I think that will have some impact as well.

    ET Now: So net-net, you are saying that this could actually turn out to be a positive news for IT sector?

    Anand Deshpande: There are many factors involved here, and you got to look at the positive side of it and make the most of it in some sense.

    ET Now: I want to understand the broader contours of what is happening in the world right now. If I look at the traditional business, or traditional Indian IT business, that is slowing down massively. There is a slowdown on an average of about 10% to 15%. New business is coming up and new business is growing exponentially. But right now, most of the IT companies are struggling because the new business is not large, and the large business, which is old business, is slowing down.

    Anand Deshpande: Why this is the problem is to do with the fact that because of next generation technologies such as cloud computing, or any of the new things you can do, the effort required for the same work is going down. So, you can do the same work with fewer people. Traditionally, the Indian IT sector has been very effort driven and most of the billings have been on effort and how many hours build and things like that.

    Clearly, the market is changing to the fact that since effort goes down, your billing will go down if you are based on effort alone. The good news, however, is that work is not shrinking really and work is actually growing. There is a lot of things happening on the next generation of technology and that is creating new opportunities for everyone.

    The challenge that we all as incumbents have is that we have to shift our business from where we have traditionally been to something new or different and that is always tricky.

    It gives some new opportunities but it also creates some short-term heartburn because when you are looking at it on a quarter on quarter basis and you are shifting your business, there are going to be quarters when things may not look as good as they should when you look at it in the long term.

    ET Now: CLSA says that you are powered by four engines, but the key is that most people seem to believe that aided by IBM what is in deal, and a few other things that you are doing, the revenue run rate for you in FY17 could be substantially higher than industry averages. Would that be true? Do you think that can actually continue in the years ahead, or would it be a one off FY17 restricted impact?

    Anand Deshpande: We have traditionally been working on a T&M basis with a large number of product companies, building products for them, and we are trying to shift our business from being not just driven by effort based estimates, but also be focused on IP and technology related stuff.

    So we announced our partnership in alliance with IBM last quarter, which allows us to partner with them on the IOT business and we are working with them on helping on Internet-of-Things, which is a very exciting and next generation area that is going to come in. This particular arrangement that we have worked out, where we have an alliance with them will give us about 15% boost on our revenue on a year on year basis this year.

    I think there are definitely large opportunities for growth for the company, if you look at it in the long term, and this shift of business from where we have been effort based to something else where we are more on the value or revenue based is an important shift that we are trying to make. The IBM alliance is a substantial part of it and a good step to demonstrate that we are making that shift.

    ET Now: Just to stretch that point forward, you have always maintained that upfront margin investments will continue. Analysts point out that it could actually peak this year. How soft will be the margin recovery this year in contrast to the next?

    Anand Deshpande: This is a question I do not want to give you a precise answer on... What we have said is that by the end of the year we will have about 2% margin impact on the financial year at the end of the year. However, one thing to note is that when you are looking at the kinds of deals that we are looking at and some of the IP arrangements that revenues are not linear on a quarter on quarter basis, that means if we are doing a certain amount during the year, it is not equally distributed over the four quarters, even though the cost on it are equally distributed across those quarters.

    That has an implication on the quarterly revenues being up and down. Quarterly revenues will not grow as fast as they grow in every quarter, there will be some volatility on it which will affect the margin. But if you look at it from a year on year basis, then we should have a fairly good year both in terms of top line and a stable bottom line. That should give us substantial good indicators for growth for the next financial year.

    ET Now: What according to you is the definition of "good"?

    Anand Deshpande: As I said, we have a 15% boost on just one specific alliance. There will be more growth across other parts of the business. Another important thing is that we are working very closely with a large partner who is very significant, and the market area that we are working together on in this particular context, where data is going to be the fundamental growth rate, and the whole IOT business is actually very exciting.

    It is going to change how we look at the world in the future, and it is all driven on technologies that we have been investing in for the last few years. One of our challenges, of course, has been the lack of visibility in the market we are going after. But the IBM alliance actually addresses that very significantly.

    If we are able to get some of our operational matrix aligned, which we have been working on for this quarter, this is a first quarter we are working together. I think in another one or two quarters, once we start to get working together and understand the working arrangements, we should see substantial opportunities.


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    ( Originally published on Jun 23, 2016 )
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