Zensar sees margins improvement, 15% revenue growth in FY14

Zensar Technologies is upbeat for the next financial year on the back of both volume and realization improvement. The company expects to improve margins in the next financial year and sees revenue growing at 15 percent on constant currency basis, Ganesh Natrajan, Vice CMD, Zensar Technologies told CNBC-TV18 today. "Given the fact that revenues are expected to move up very smartly and there is not too much of cost pressure, I would think that margins will also look better," Natrajan said. Barring Japan, Natrajan is seeing a smart uptick in other economies across the globe and pent-up demand across all sectors.
The company continues look out for buying companies that match its business strategy. Zensar is on look out for USD 30-40 million companies across US West Coast and Europe. Below is the verbatim transcript of the interview.
Q: The managements of all the IT companies we are speaking to are sounding very bullish about FY14 with respect to deals etc. How are you seeing the industry? Is there a possibility that industry may beat National Association of Software and Services Companies' (NASSCOM) 12-14% growth forecast? A: I would certainly think so, given the trends in all the markets. If you look at US it is very solid today. Europe is looking better. Australia and Africa which are new markets are doing well. The domestic segment is good. So barring Japan, I see a smart uptick in the economies everywhere else in the world. Also there is lot of pent-up demand in terms of spending across all sectors. I would think there is fairly robust demand. I would expect that 14 percent constant currency growth next year is a very distinct possibility.
Q: Which are the sectors that are showing this kind of demand in terms of clientele? It does not look like the financials are in that fine fettle. Is it manufacturing, is it retail, which ones? A: Our own company focuses primarily on manufacturing, retail, insurance and financial services. So certainly manufacturing and insurance are doing extremely well. Retail is actually very geography specific. We are seeing that retail in the UK is still pretty slow. But if you look at Middle East, South Africa, America, I think there is a smart uptick in retail, plus of course there is the outlier which is healthcare. Healthcare in the US is expected to boom, so anybody who is in the overall healthcare plus insurance segment will do well. So I think overall a lot of opportunity everywhere.
Q: You were one of the first Indian IT companies to win a contract under the Obama Health Care Plan of Rs 250 odd crore. Are you likely to win some more? Is there traction on that front? Are you bidding for any new contracts? A: Very much so. The healthcare and the provider segment are now becoming very important for us. We have won another deal in the provider segment last year and we are chasing at least three and four more deals. As I said the opportunity are there right from disease classification to code conversion. Also, these providers tend to be underinvested in IT, so I think there is a huge opportunity there.
Q: How will margins fare? It does not look like you all have too much by way of wage pressure. So should margins be better in FY14? A: I would think so, but I am not too sure, because it depends on the company. In our own business we had a slow two quarters for the infrastructure management business and that is now moving up very sharply. So I guess we would definitely expect to see much healthier margins next year. We would also expect that there would be wage increases, but you are right there is no undue pressure on wages. Given the fact that revenues are expected to move up very smartly and there is not too much of cost pressure, I would think that margins will also look better.
Q: When you say revenues is it really a volume game or are you expecting even realizations to improve? One would think realizations could be under threat. A: I think we are looking at volumes. I would think that in terms of sheer volume whether you call it dollar revenue growth or constant currency growth, 14-15 percent growth looks very good at this point of time. Of course it is difficult to predict given the nature of the global economies, but given the positivism we see all around; positivism for economy as well as the demand, we are overall positive on industry.
Q: Would you think the cutting in terms of billing is not an issue? A: Not at this point of time. If people were focusing on new services such as mobility, cloud. Contracts are coming in at higher prices, and the volumes are also bigger in such services. If you are just a traditional application and infrastructure management provider, then probably the prices will not go up sharply. But certainly in the new segments we are seeing higher pricing and there is no downward bias towards pricing at this point of time.
Q: You have done about 25 percent growth in revenues in the nine months in this calendar year. Assuming the same that that is what you end the year with for FY13, if FY14 has to be better than FY13, what will be the kind of revenues Zensar Technology can see? A: Everybody is benefited by the rupee this year, but in terms of constant currency we are targeting a 15 percent growth, and it is not a formal guidance yet. If the rupee remains stable, that is 15 percent. But if the rupee had the fluctuations that we saw this year, then it will be better, but I am not even counting the currency gains or losses. It is constant currency that all people are aiming for and our entire strategy is oriented towards that kind of growth.
Q: Are you likely to close any acquisition in FY14? Are you looking at something? Have you finalized anything? A: It is not factored into our growth targets, but certainly we are looking. Today if you look at our dominant vertical which is manufacturing, we see an opportunity to fill in a space which is SAP in the US. In this space we have grown the business from zero to almost Rs 150 crore in the last three years. But we expect to look at maybe USD 30-40 million companies and see whether any of them are acquirable. We may also do a follow-on acquisition in the infrastructure management space. Having digested the fairly large American deal that we did two and half years ago we are in the mood for looking at something on the West Coast, something in Europe. But as I said it is not a must do for us. If we get the right company at the right price, then yes we are certainly in the market for acquisitions.