That's A Hit!

MindTree is reclaiming mindspace. The Tier 2 company, which
has successfully reoriented itself since 2001 with changing business realities,
is now riding high on double-digit growth; and crossing the $100 mn mark in
revenues in just six years, the fastest Indian company to do so.

For MindTree Consulting chairman and MD, Ashok Soota, who
took Wipro Infotech to new heights before MindTree came into being, the
possibilities ahead are endless, not to forget the demands of finding new talent
to take up new challenges. From an emerging IT services company to a key player
in the outsourcing boom, the former CII president has seen the average project
deal size of his company soar past the $1 mn mark, and as a consequence, revenue
growth at double the industry average this year.

Soota's revenue target of $231 mn by 2007-08 will be
further aided by the company's IPO float sometime later this year. MindTree
had stated earlier that an IPO would be inevitable once the $100 mn target for
revenues was achieved. The final call on the IPO will be made post the review of
the IPO strategy in September, Soota said, preferring instead to elaborate on
the company's growth figures.

As such, the company's almost doubled its revenues over
last year, growing 85% to $102 mn over the previous $55 mn, its IT services
business grew 87% and R&D services by 75%. Key engineering design and IP
design and development for prestigious overseas clients out of MindTree's
Bangalore operations brought in 25% of total revenues this fiscal. The
increasing R&D revenues and productivity growth between 5-8% this fiscal,
have meant a reduced dependence on onsite revenues, which fell to 58%, with
offshore revenues bringing up the rest.

While the average headcount was 2,500 in 2006, MindTree is
on course to add another 3,500 consultants to its current headcount of about
3,200 by 2007-08. At least 1,500 new recruitments are proposed in fiscal
2006-07, said MindTree officials.

MindTree has raised about $23.6 mn in two rounds of funding
from The Capital Group, Walden International and Global Technology Ventures. VCs
currently hold 40% stake in the company and a further dilution of stake looks to
being the key point of discussion at the company's IPO review in September.

Shedding the Blockbuster Approach

After the lows of fiscal 2005, Tier 2 vendors are poised for strong growth
to match terms with Tier 1 companies, say industry sources. This is especially
true when considered against the growth and diversification in the Indian
outsourced services market.

Besides, while TCS, Infosys, and Wipro are trying to rival
the likes of IBM, Accenture, and EDS by pursuing the path of high resistance in
their quest to become global systems integrators, smaller companies such as
MindTree and Mphasis with lesser resources have focused on value-based pricing
and their keeping margins steady.

While client bias towards Tier 1 companies has continued
through fiscal 2006, the lean and mean ones with lesser reveneus and headcount
have grown more reputable and customer-oriented. They are learning to take
advantage of the preferences of some clients to work with smaller companies such
as MindTree and 3i Infotech or niche specialists-Subex Systems and 3i Infotech.
While the smaller size of companies such as MindTree enable them to be more
customer-friendly, these companies have also been working hard at building
broader and deeper capabilities across a range of service lines and expanding
gradually-a clear indicator that the Indian vendor market is maturing.

Mindtree will be targeting the knowledge process
outsourcing segment, manufacturing, and insurance segments this year. According
to MindTree COO, Subroto Bagchi, the firm has signed an MoU with the government
of Orissa to start a 30-acre campus in the special economic zone in Bhubaneswar.
MindTree will also start operations in Chennai this year with around 300-500
people.

Whether in engineering design services or testing, it's
no more about just a low-cost offshore alternative. Offshore testing services
have seen increased demand, with top tier companies having dedicated teams on
the job of improving testing process and achieving quality differentiation for
clients. With shared services models becoming a stronger possibility in
enterprise deals, companies such as Wipro and HCL, and the Tier 2 competitors
such as MindTree, Patni Computer Systems, and 3i Infotech will be looking at
balancing their core R&D skills against incrementally improving their
testing practices-increasing services offerings to handle more complex testing
tasks.

CEO of MindTree's IT services, Krishnakumar Natarajan
says that the company's growing expertise in new and emerging horizontals such
as business intelligence and data-warehousing will tie in well with its quest
for customers in the manufacturing and insurance sectors. “For us, it's not
a question of just scaling up to meet an increasing customer count. Sharpening
our delivery capabilities and greater horizontalization will be critical. We
have been working at targeted vertical offerings through strong domain-based
solutions, not just cluster offerings. While we have verticalized rapidly since
2001, the move towards greater horizontalization will imbue our service
offerings with true depth.”

Diverse Roads

The past fiscal has seen greater variegation in the kind of tasks, which can
be sent offshore. New areas such as remote infrastructure management (RIM),
against the broader subject of infrastructure outsourcing, have emerged as hot
new revenue areas for Tier 1 and Tier 2 companies. More and more Indian
outsourcers have been encouraged by their success with clients on various
applications maintenance and development projects and are looking to be an
active part of the infrastructure outsourcing boom among overseas clients and
Indian telecom carriers.

While many vendors did not for years have the necessary
complement of skills to fully support the overseas customer's infrastructure
needs. Today, global vendors such as TCS, Wipro, HCL, ThoughtWorks, Infosys, and
MindTree are developing strong offshore capabilities to handle remote monitoring
and other infrastructure tasks. Wipro and Infosys have set up dedicated RIM
centers in Mysore and Bangalore, while MindTree has been toying with setting a
center out of Hyderabad. Infrastructure consulting will be another key growth
area-where Wipro and Infosys have over 10,000 consultants active currently.

Technologies such as pervasive wireless, universal
authentication, and mesh networking are expected to have a significant impact on
computing in the next 10 years and Tier 2 companies are moving to take advantage
of these 'decider' technologies for the enterprise. Pervasive wireless is
envisioned to link mobile and radio-equipped computers in ad hoc configurations,
which can change on the fly. Collections of wireless devices can be linked to
form mesh networks that pass data from one to another until they reach the
Internet and can then be connected to servers as well as mobile devices such as
cellphones, laptops, pagers, and other gadgets, which employ diverse wireless
protocols. MindTree is poised to be a major player in this space with a slew of
wireless IPs generated over the last three years.

The achievements of the engineering and design services
validate the fact that the low-cost rationale for outsourcing is passe. MindTree
is now the third largest IP vendor in of Bluetooth applications and also
focusses on licensing out its IPs in areas such as wireless and RFID. With one
patented solutions, and three patents filed this year, another seven are in the
pipeline in fiscal 2007, says MindTree president and R&D services head, S
Janakiraman. Occupying pride of place in his IP drawer is a solution, which his
R&D team developed for telecom giant Nera. The patented solution called
ClearMind, can filter out the surrounding noise and interference from electronic
devices in a telephone conversation. The solution eliminates echo and background
noise without sacrificing on voice quality.

Take Avis.com. When the world's largest online car rental
business wanted a single, multilingual, Web-based application to cater to the
needs of millions of customers speaking different languages, MindTree created a
business development platform, which process transactions worth $1 bn everyday.
MindTree developed the Avis.com search engine out of India and manages it from
India via what it calls its patented 'One-Shore' process.

The numerous recognitions MindTree has gained on the
outsourcing firmament since 2004 will be the octane powering the MindTree brand.
For a company, which derived 75% of its revenues from dotcom customers prior to
2001, MindTree's hybrid delivery model or 'One-Shore' will help keep
margin pressures on a tighter leash. But more large-sized deals could put the
One-Shore paradigm to the test. Balancing the flow of people, growth
predictions, quality, and talent against innovation will be the test factor in
MindTree's vision of being among the top 20 globally admired companies of the
outsourcing industry.

Ravi Menon

ravim@cybermedia.co.in