CNBC-TV18's exclusive interview with Ramalinga Raju: Satyam


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Founder & Chairman of Satyam Computer Services Ramalinga Raju believes that large deals will add significantly to growth plans. Raju says that Satyam will be able to protect margins with a marginal decline.

Founder & Chairman of Satyam Computer Services Ramalinga Raju believes that large deals will add significantly to growth plans. Raju says that Satyam will be able to protect margins with a marginal decline.
Further, on the FY07 guidance given out by Satyam, Raju says that the guidance is based on current visibility.

Excerpts from CNBC-TV18's exclusive interview with Ramalinga Raju:
Q: How are you feeling as you enter FY07?
A: We are feeling very good. We believe that last years performance has been quite a stellar. We are moving into this year on that optimistic note and we believe that the opportunities are significant. Now we are beginning to have significant presence in large deals as well. That should add to whatever growth plans we have.
We have managed our margins well. We should be able to protect margins reasonably well for the year with marginal declines.

Q: You delivered 36% EPS growth this year and your guidance is 18-20% Indian GAAP? Any reason why you are being so conservative with FY07 guidance and profitability?
A: 18-20% is a significant growth in any measure. We cannot operate based on good performance, and in previous years we had to constantly keep building our models. We have to take various things into account. There are somethings that we can predict and somethings that we cannot predict and therefore one needs to be sure about the guidance given to the Street. In that sense, all our plans have fallen in place. We feel very good about the guidance that we are giving today.

Q: What are these uncertainties because last year your revenue growth in percentage terms and profit growth in percentage terms are comparable but you are guiding almost 25-27% revenue growth but only 18-20% profit growth. Any reason why there is a 6% gap between profitability growth and revenue growth?
A: There are a number of factors that one has to take into account. As far as the growth is concerned, there are some things on which we can be certain and there are some things where we cannot be so certain. When you factor all those things, you have to be sure as to what you are guiding the street on, the numbers that come out are the numbers that we have to share not the ones that we would optimistically put into place. As far as the margins are concerned, we are cognizant of the fact that our attrition levels are not at levels that we desire and therefore we have definitely factored in very good increases for our associates, such that our attrition rate can significantly improve. This would be an investment that we would be making for the future years as well. Therefore, we are giving lot of importance to building assets for the future.

Q: Where would you like to see your attrition levels because 18-19% is a very substantial offshore salary hike? If once this is affected, compare your current attrition levels to what would be the end results to what you desire by the time FY07 ends?
A: We may not be able to specifically give out a target number. We can say that there is an opportunity for atleast a few percentage improvements. If it is anywhere between 10-13% or so, we would be quite happy.

Q: You started last year with a very conservative EPS guidance and outperformed it by a wide margin. Are you doing that right now that you will be conservative and keep a room for outperformance in FY07 as well ?
A: All we can say is that whatever guidance we have given is well thought through. I think it is a very good guidance.
We were very fortunate last year and things worked out very well for us. Many deals happened and expansions with existing customer was greater than what we had anticipated. We also managed our margins fairly well to the extent that we were able to give back something more to our associates, which would help us in long-term. We are taking those corrective steps today.

Q: Would it be fair to say that you have better revenue visibility or overall business visibility than margin visibility as you look forward to the next four quarters?
A: I am not so sure if I would define it that way. We do understand our cost numbers fairly well and revenues coming from our existing client base, and given the fact that almost 92% of our revenues come from existing customers, there is always room for improvement and that would depend on many other things. We cannot factor those things into the guidance. We have to assign probabilities to what is likely to happen and whatever numbers we have come out with a derivative of a number of variables.

Q: Is pricing getting more competitive? Are these large deals auction kind of deals where one would want to get into a 5 - 10 year relationship, so one may want to compromise on value or price?

A: We have been engaged in negotiations for large deals with a fair number of customers. One of our experience is that each large deal is unique. We are taking a stand where we would be guided by what opportunities it brings, whether it preserves our margins or whether it ensures higher growth. There is a range of things that we can do to structure these deals. So we are not compromising there.
In that environment, we are essentially operating today and we believe that the large deals need not be margin dilutive. Large deals are strategically very important. For the first time, large US customers are willing to come to Satyam for large integrated project deals. It is an excellent news. We believe that we are graduating yet another level of operations on a global scale.

Q: Billion dollars help in negotiating for large deals?
A: A minimum size helps but once you have a minimum size what matters is the confidence of the customers that you are able to deliver when you take up larger projects. The fact that over a period of time we have built excellent reputation with our customers helps. We believe that we have crossed this threshold of size. Size does matter, there is no doubt about it and that is one of the reasons why second tier companies have not been growing as fast as some of the companies that have a certain scale. And today it is in our favour.

Q: Is there a gap between average salaries at Satyam and your top peers in the industry, which you have covered with this hike?

A: It is difficult to conclusively make such a comment because we have various levels within the company. There are levels and skills for which we reward people well. There may be some areas where the competition may be better. Our salaries now would be much more competitive and we believe this would add to many other measures that we are taking. One of the things that needs to be noted is the fact that retention levels in Satyam among leadership level has been one of the best in the industry and this would further improve going forward. We believe that is strategically an important factor to be kept in mind.

Q: How long will it take you to move from one billion to two billion?

A: We are quite proud of the fact that we are among the few top companies to reach a billion dollar mark. We are an ambitious company. Fortunately we have associates who are very committed, therefore we have a requisite size. We are working with 155 global Fortune 500 companies. We enjoy a high lever of trust, which would certainly help to accelerate the process of reaching the next milestone. We hope it would not be too long before we hit the next milestone.

Q: As a CEO do you look at next year with more optimism because of the way business is shaping or do you look at with some degree of apprehension as to how costs and margins are shaping?

A: We are very positive, the opportunities that are in front of us are extremely positive. We want to grab some of those opportunities that are around us. If we don’t perform well, we clearly know that it is not going to be on account of lack opportunities in the market place but on account of our inability to respond to those opportunities well. Whether it is at the leadership level, or being able to provide special solutions to the customers, we have to see. Most often when one doesn’t see growth, it is not because the customer did not need your services but because one has not been able to position the services to meet customer requirements.

It is a challenge for any company today particularly for companies that are growing very rapidly to balance the competency pool with the market requirements. We have taken many measures to meet these challenges, whether it is Satyam School of Leadership, or special initiatives for building competencies. We believe that those should pay off in the near and long-term.

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