Evolving To Attain Great Heights

Nearly a decade ago, in 1988, the Mahindras and the British Telecom (BT)

joined hands to form a joint venture–Mahindra British Tele-com (MBT), to primarily tap telecom opportunities during the regulated market regime. The basic purpose was to set up high-speed telecom lines at industrial parks that were sprouting in Maharashtra at that time. But, as is the case with the

regulated market regime, bottlenecks soon developed and MBT was left catering to the needs of its JV partner, British Telecom. It took MBT three

years to come out of the loop. In 1991, it started focusing on software.

However, the real test began in 1995. Until 1995, MBT was servicing BT. Given the growth potential and value-addition that the company was aiming, it was decided that it would not be able to garner command in the market by only servicing BT. Hence, MBT embarked on the road ahead with its ‘Vision 2000’.

With about 350 people in its fold, and offshore projects contributing to less than 10% of its total revenues by fiscal end 1996, MBT deemed it necessary to have a paradigm shift in its approach. It was decided that the company

should move from being a professional services company to becoming a projects-driven company. The realization within the company was that as more and more projects came in, everything else would fall into place. 

Reorganizing the management



In 1996, the management also underwent a change. Kiran Deshpande, the MD joined the company along with senior managers from BT who were designated as corporate managers. A senior person was also roped in from the Mahindras to look after the finance department. With the management restructuring in
place, it was now the duty of the new management to understand, interpret and implement ‘Vision 2000’. “Today, what is seen at

MBT is the Vision 2000,” says Deshpande. 

MBT has been operating on ‘Vision 2000’ with the slogan “2000 by 2000”. But as Deshpande says, “I was not excited by this slogan, because it all

depended on projects and the mixture of business.” The aim was to increase its offshore services, create full-life cycle capability, develop businesses other than BT, increase the workforce strength to 2000, by the end of this fiscal and reach 50 million pounds profit by the end of the year. 

As Deshpande says, “During the fiscal 1996, we delivered 25 person years and the offshore was less than 10% of the revenue. In the last fiscal, we were able to deliver close to 800 person years with 60% revenue coming from

offshore-onsite and 40% from offshore. Now, we have more than 150 projects on hand, instead of just professional services.” Interestingly, BT still continues to be its major revenue giver and MBT has embarked on the project of

supporting the systems in work-package mode, with the company managing and running it. “BT’s 70% revenue comes from that system and it will all

depend on how MBT runs it,” clarifies Deshpande speaking on the challenge that his company took up. Today, it has become a systems engineering and consulting company with its vertical specialization still resting on telecom. 

Encouraging revenues



While in 1995-96, with a revenue of Rs32 crore it made a profit of Rs2 crore, in 1998-99, MBT made a profit after tax of Rs55.3 crore on a total revenue of Rs171.8 crore. The major point to note is that, the offshore revenues went up by 137% to constitute 40% of its total revenues. Not to be left behind, its non-BT offshore business accounted for 37% of its total offshore revenues. 

If one takes into account the unaudited financial results of the company for the third quarter (Q3) for this fiscal, one finds that the company’s gross revenue touches Rs59.04 crore as compared to Rs41.81 crore in the corresponding period, the previous fiscal. Its profit after tax came to Rs16.38 crore as compared to Rs14.87 crore in the corresponding period of the previous fiscal.

As regards the nine months period ended December 31, 1999, the gross revenue was Rs170.66 crore as compared to Rs123.89 crore during the corresponding period of the previous year. The profit after tax was Rs46.6 crore as compared to Rs37.7 crore during the corresponding period, the previous year. The operating margin of the company has been pretty high and with a workforce close to 1,900, its utilization of software engineers has been 92%.

The half-year ended September 1999, MBT’s earnings per share stood at Rs31.48 as compared to Rs28.41 at the end of the fiscal 1999. 

The customer portfolio of MBT was also enhanced beyond the scope of BT with clients like Willets, GCI/IBM-USA, Al Ansari, LT Ved, Al Zubair, Qatar Telecom on the international front and the Government of Maharashtra on the domestic front. MBT also owns IPRs for the solution developed for LT Ved’s foreign exchange, textile and food chain business. Over and above that, commensurate with the Vision 2000, projects in the Middle East and India are extended life-cycle projects spanning from conceptualization to systems implementation. 

However, that led to more challenges for the company. “There has been an increasing preference for packaged software and use of pre-fabricated software components in the global market. MBT will have to enhance its offerings to leverage these opportunities. Any software that we will access, we will ask whose intellectual property (IP) it is. Is it the customer’s or ours or shareable IP. The requirements for software development, maintenance and outsourcing in the traditional mode will certainly be there. But, it will gradually reduce not in the physical sense, but in market share,” says

Deshpande.

With foreign SI companies setting up offshore software centers in India, it became imperative for MBT and other software houses to open development centers. With BT granting it a sensitive project, MBT decided to open another development center in the UK, in addition to the already existing one in Wembley. “We decided to go and leverage on whatever we already have. The main aim was the ability to deliver projects and that too offshore ones by focusing on managing teams,” remarks Deshpande. Not to be left behind in the race for creating IPs, MBT is also keen to do so. However, it has no plans of going after the products business and plans to remain a systems engineering and consulting company. “We are keen to create IPs around which solutions can be built. It will be a catalyst for commercialization,” says Deshpande, justifying his company’s plans of focusing on the service nature of the business. 

Vision 2000 to Mission 2005



MBT also encourages independent ideas. As part of its employment management program, attraction and retention of top talent, the company encourages ideas right from conceptualization to commercialization. “We are working on close to 20 ideas at the moment and I am certain that some of them will definitely take off in the near future,” reveals Deshpande. As Vision 2000 comes to a close, the future strategy of the company has to be charted out and at the December 1998 G35 Annual Business Planning Workshop, MBT’s ‘Vision 2005’ was discussed.” Speaking on the future strategy of the company, Deshpande remarks, “In today’s environment the best strategy to have, is not to have a strategy. However, MBT’s Vision 2005, which I would prefer to call ‘Mission 2005’ was formed. The G35 concept started in December 1996, when a group of 35 met at Lonavala, to discuss and put forth the guidelines for the company’s vision. And from that time onwards, it has continued over the years. There are 12 syndicates which debate on specific segments for six to eight weeks and come out with their findings and recommendations at the annual business workshop.” 

As part of it, Vision 2005 or in Deshpande’s terms, Mission 2005, focuses on increasing the business from the UK and Europe to 150 million pounds. It also plans to increase its business from North America to $75 million. Over and above that, Vision 2005 envisages MBT-owned software components to account for 25% of the overall revenue, increase revenue per employee by 10% per year, in terms of the US dollar

and develop one more industry vertical. 

Though ecommerce is the buzzword, MBT does not intend to become a commerce service provider in the short-term. It will continue to leverage telecom as an industry vertical. Meanwhile, it will acquire domain expertise from the market place. “We will continue to remain a systems engineering and consulting company. There are many things that can be done in this broad line

of business. It has a much more broad canvass than earlier,” says

Deshpande, reiterating his company’s positioning. 

Another interesting factor that has to be noted is that the company has

increased its investment in education, quality and software processes, research and development, business development, recruitment, community initiative and infrastructure. The investment in corporate education increased by 400%, while that in quality went up by 250%. Moreover, the company has drawn up plans to create 480,000 square feet of office space in the next four years for 4,970 people and the budgeted outlay for the capital expenditure has been pegged at Rs256.1 crore. 

Highlights



During the fiscal 1999, MBT created the Center of Excellence in Learning (CEL), which is into doing work on many aspects of organizational learning. The center will focus on knowledge assimilation and dissemination techniques, facilitate sharing of mental models, develop abilities for collective leadership, encourage systems thinking and applying ancient wisdom to enrich the company! Over and above that, it has also set up Centers of Excellence (CoEs), which will build expertise in the chosen technology areas and functional domains. In the last fiscal, CoEs were created in the areas of intelligent networks, network management, constraint satisfaction systems and learning. 

However, if we go by Q3 results of the company, there has been a definite slowdown in the performance of the company when compared to the industry averages. One of the reasons for the company’s revenues coming down, is its aim to concentrate more on external customers rather than on BT which has been its main source of strength. And considering the financials till Q3, MBT may be able to reach a target of about Rs250 crore by the end of this fiscal.

On the other hand, concentration on non-BT customers will definitely add to its valuations. With the company’s budget outlay of Rs256.1 crore for capital expenditure, MBT would have to tap the capital markets if it needs to raise the amount in a short-term. This means that promoters will have to dilute their stake. Though the official comment of MBT is that they have not taken a decision on it so far, in case they need to go for an initial public offer, analysts predict that they can command a price of Rs1,300 per share taking into consideration, that their price to earnings ratio is around 30 and the earnings 



per share is around Rs42. In all probability, it would be through the book-building route that the company may tap the capital
market. 

All said and done, Vision 2005 is a real challenge for the MBTians. As

Deshpande says, “Vision 2005 does not look easy today. Climbing the summit is more difficult than reaching the base camp. However, with sound strategy, smart working, teamwork, relentless pursuit of objectives and self-confidence, MBT will meet Vision 2005 objectives.” If they do it, it will be a mission come true for Kiran Deshpande and his team of

MBTians.

Rajesh Menon



in Pune