Zensar Technologies eyes 20% CAGR growth for next 3-years

Ganesh Natarajan, Vice Chairman and CEO, Zensar Technologies in an interview to CNBC-TV18 spoke about the company’s Q2 performance and the outlook for the company going forward. He is confident of all the verticals doing well for the next eight to ten quarters and overall sees 20 percent CAGR growth for the next three years. Deal pipeline also looks comfortable with around 3-4 deals for USD 15-30 million and 5-6 deals for USD 5- 15 million range, said Natarajan. Even the USD 1 million engagements are growing substantially. The nature of the deals will be a healthy mix, he adds. According to Natarajan most business segments would show good performance on the margin front too; infra business which was looking laggard for long will improve going forward and margins for the enterprise business too will show stable growth, he added. Talking about the company’s recent acquisition of Professional Access acquisition, he said it was a profitable company that had done USD 38 million last year, is sure to growth over last year. FY15 will see two quarters of benefit from the acquisition, he added. Retail business too is doing extremely well, said Natarajan. Below is the transcript of Ganesh Natarajan's interview with Reema Tendulkar and Sumaira Abidi on CNBC-TV18.
Reema: In this quarter, you have indicated that you have seen revenues of about Rs 39 crore as well as profit before tax (PBT) of Rs 7.5 crore because of Professional Access acquisition - what can be the contribution of this acquisition for H2, and full FY15, as well as for FY16?
Ganesh: The good news is it is a very profitable company. If you look at last year, they did close to USD 38 million. So we are certainly expecting that they will do well and grow over last year. So I think you can do your numbers and we will get two quarters of benefit from Professional Access. Even apart from that, I think retail business is doing extremely well and given the strength we see in the US market, we are pretty confident about the prospects for the current year.
Reema: USD 38 million is what Professional Access did last year. How much can you do this year as well as the next year, what is the kind of growth you expect from this? Ganesh: In e-commerce, you should be able to grow 20 percent per year and that is what we would expect. But it is too early to say exactly what we will do this year but that is the range you can expect from e-commerce because it is a projects company. So clearly they work on large projects, which are USD 3-4 million and these deals are difficult to predict in terms of quarterly stability of revenues. However, on overall basis if you look at the next three years CAGR, we are certainly looking at more than 20 percent growth in every year for the next three years.
Sumaira: Can you take us through what your large deal pipeline is looking like at the moment? Ganesh: It is looking pretty good because if you look at large deals and if you look at deals in the USD 15-30 million, that itself you are looking at maybe 3-4 deals that we are chasing. Then if you look at deals within 5-15 million that is again a similar number maybe 5-6 deals and I would think that even if you look at our more than USD 1 million engagements that are going on, that has increased substantially. So the good news is that, all organisations are now focused on transformation of their business. So our digital story is resonating very well with customers both in US and Europe and given that the nature of the deals will be some large support deals, a few projects in digital and e-commerce, which will then scale to larger. It is a pretty healthy mix that we are seeing at this point of time.
Reema: Your margins showed an improvement despite wage hike and Rs 4 crore impact because of the integration of Professional Access. They currently stand at 14.1 percent. What is the margin picture till the end of FY15 as well as the kind of improvement you expect next one year?
Ganesh: Today our infrastructure management business which was a kind of laggard for almost 8-9 quarters because we were integrating a company and changing the model to more of dual shore services. So dual shore services, which is our focus has gone up that is roughly 36 percent of that business. Therefore as we go forward, that margin will keep improving. For our enterprise business, the margins have been more or less stable. If at all we have had lower margins, it will be in Asia, but India has been doing extremely well in recent past. Our core markets that we call are leader territories have been growing substantially both in revenues and profits which is US, Europe and Africa which leaves Professional Access and as I said that is the same margin profile as the rest of our business. So going forward, both revenues and margins - I am sanguine about the prospects. For Q-o-Q it is difficult to predict but if you look at it over the next 8-10 quarters, you should certainly see good news on Zensar on all dimensions.