Large Deal Pros and Cons in Indian IT Services Context

As the President of commercial and healthcare businesses at Satyam Computer Services, Ram Mynampati provides business leadership in market segments such as BFSI (banking, financial services and insurance) and healthcare. In addition, he provides executive leadership to Satyam's relationship with GE, Satyam's largest client. Mynampati is also responsible for the retail, transportation and US Government vertical business units. He also spearheads Satyam's emerging business in Canada. In a chat with eWorld, he talks about Satyam's core business:

What constitutes a large deal for Satyam Computer Services and what is it that you look for in a large deal? Are large deals likely to be margin-accretive?

The minimum size associated with a large deal is $50 million (Rs 225 crore). The size and period varies but what categorises it as a large deal is the guaranteed and sustained revenues associated with it. I don't think large deals can always be margin-accretive to start with.

They might be margin-neutral at times, but not be margin-dilutive. This implies that for a fixed period we are guaranteed a certain flow of revenue, which further means that the cost associated with having to sell is not there. Second, large deals provide us with the freedom to mix and match competencies, resources and locations to meet client expectations.

As long as we see the predictability of revenues and opportunity to manage margins selectively, large deals will be a good fit.

In today's scenario, deal sizes are really getting out of hand. When do you know that you are not being opportunistic or tactical in choosing deals?

We are only six months old when it comes to large deals and only 5 per cent of our revenues come from them. First of all, we need to master the art of delivery of a large deal. I can grow large deals by 50 per cent, as these are only one-time fixes. If I get a large five-year deal, that client is not going to give a second five-year deal immediately. It's a one-time effort. As long as volumes are there and we are able to manage at least a margin neutral scenario, percentages wouldn't worry us much.

What are the other levers that will work well for you in the coming quarters? Apart from cost optimisation, what are the other levers that can enhance your margins?

I believe that from a margin perspective, the total cost of delivery can be managed much more efficiently than we presently do. Our first endeavour is to bring down the total cost of delivery of projects. Optimising the resources deployed in a project is a very important lever as it brings down the total cost of delivery. We have to try cutting costs and that can mean moving to tier two cities or relocating from the US to India.

What proportion of your revenues will come from new service offerings, apart from enterprise solutions, in which you have been a traditional leader?

Engineering services outsourcing (ESO) and infrastructure management services (IMS) contribute about 15 per cent to our revenues. We are looking at scaling that up substantially in the next 2-3 quarters (by 2007-end). ESO, in particular, looks very potent, as we have already invested in some interesting competencies.

Which verticals do you think will drive the next wave of growth for Satyam?

While verticals such as banking, financial services and insurance and manufacturing will continue to do well, the pharmaceutical sector is surely something to watch out for. In addition, retail and consumer durables have a lot of scope. Moreover, you can expect above average kind of growth from energy and utilities.

What strategy do you follow when it comes to acquiring companies in overseas markets?

For Satyam, acquisitions need to be strategic and complementary, otherwise they don't mean much. Acquisitions should help us to bring multiple competencies to the existing domains. We would never acquire companies to create a new market. All our previous acquisitions and the ones that we will be making in future are going to extend our value chain and not create new service offerings. We will not acquire product companies or companies that operate in distant markets such as Chile or Brazil just to anchor into these markets.