MindTree's Soota: Aiming to be a global player

The headline looks interesting: MindTree Consulting has notched up revenues of $100 million (Rs 450 crore); the qualification, that it is one of the youngest Indian it companies to do so makes its feat even more impressive. The Big Three of Indian IT-TCS, Wipro and Infosys-had taken 29, 18 and 17 years, respectively, to reach this landmark. The body text and the fine print also look fine, except for a couple of small blips. But more on that later.

First, the headline: of MindTree's 2005-06 topline of $102 million (Rs 459 crore), 75 per cent comes from it services, which provides the bread and butter for all Indian it majors. But TCS, Wipro and Infosys have revenues of about a couple of billion dollars (Rs 9,000 crore) and headcounts of 50,000-plus employees each. Can the relatively puny MindTree, with 3,200 employees, stand up to its bigger rivals? Subroto Bagachi, COO, MindTree, is confident it can. "Customers are looking for agility, accessibility and attention at every level of engagement, which we are able to provide. This is a key differentiator for MindTree," he says.

Treading the path others have walked before, the company is trying to verticalise its services business. N. Krishnakumar, President and CEO, IT Services division, says: "We are now looking to address vertical segments. Travel and leisure, manufacturing, insurance and government will be focus areas even as we strengthen our position in the testing and validation and data warehousing segments." MindTree has added 35 customers in 2005-06 to the 125 it had in the previous year. The prized catches during the year: Imperial Tobacco Group, Emirates Airlines, Burger King, DeBeers, Essilor and IATA.

But the company has also consciously tried to diversify its basket of offerings; 25 per cent of its revenues come from research and development (R&D) services, especially in the telecom space. Recently, it wrote customised software for a South Korean mobile manufacturing major which enhanced the battery life of its phone by minimising power consumption. Says S. Janakiraman President & CEO, R&D Services: "MindTree is developing its own intellectual property (IP) in this segment. We have already filed for four patents and seven more are in the pipeline." The company recently won a bid to supply its Bluetooth protocol stack for NEC's mobile phones. Janakiraman expects royalties from its IPRs to start contributing significantly to revenues from 2007-08 onwards.

These achievements hide some areas of concern. MindTree's net operating margins are believed to be significantly lower than those of the Big Three. The company, however, refuses to share these figures with BT, citing its status as a privately held one. "Yes, we are not in the high teens, but we are looking at increasing them," says Ashok Soota, Chairman and MD, MindTree. The industry average is 21 per cent for Tier-I players. Its topline, though impressive, also needs some qualification. It reached the $100-million landmark a year behind schedule, and fell short of projections by $21 million (Rs 94.5 crore) when it did. This is because the dotcom bust hit the fledgling company harder than most others as 75 per cent of its revenues came from dotcom-related businesses. Since then, of course, it has rallied around and diversified its offerings and customer base.

Soota is also reluctant to get into details about MindTree's proposed initial public offering. "We have enough cash. We will list only to provide liquidity to investors. We had promised that we would examine listing once we crossed the $100-million turnover mark. Now that we have done that, we are free to list depending on market conditions." Its topline projection for 2007-08 is impressive: $231 million (Rs 1,040 crore); it will also double headcount during this period. 'We are on a firm growth trajectory and we believe we have achieved the critical mass required to become a global player," says Soota.