There are no financial irregularities found against Helios and Matheson

If you are wondering what's happening with this Chennai-based IT Services company which hogged the limelight few years ago and went on a sort of media sabbatical the last couple of years. Stop wondering. We checked with GK Muralikrishna, CEO and MD of Helios and Matheson Information Technology (HMIT) in an exclusive interaction with Dataquest and he walks through the transformation the company has made the last few years, the issues and litigation with vMoksha and the road ahead. Excerpts:

In order to get a historical perspective and context, Helios and Matheson ever since it proposed acquisition of vMokhsa has been in the news for all the wrong reasons. Even today any discussion on the company leads to the litigation that revolved around vMoksha. For the benefit of the readers can you demystify the whole issue?

This matter is sub-judice and our application for appointment of a new arbitrator is pending before the Hon'ble High Court of Madras. The Madras High Court ordered that, pending arbitration, none of the parties should speak to media about the transaction.

We have been making a disclosure to our shareholders in the annual report every year on the status of arbitration. Basis such disclosure let me share some details. vMoksha transaction was brought to us by PWC who were mandate holders for the sellers. We engaged KPMG to carry out due diligence and Ernst and Young did the valuation. Deloitte were the statutory auditors of vMoksha. Khaitan and Co acted as legal advisors for the transaction. We have also obtained the approval of FIPB for the transaction as structured by PWC.

Despite engaging professional help, the transaction could not be consummated for the sole reason of internecine quarrel between the two seller entities of vMoksha and we were hit in the crossfire.

We had to take legal recourse to protect our company's interest and the interest of our shareholders. After protracted legal proceedings, the sellers were forced to participate in arbitration proceedings. Unfortunately the arbitrator passed away after two years of work, but before the award could be pronounced. We approached the court for appointment of another arbitrator and the case is pending.

As per orders of the Madras High Court, pending arbitration, the shares of vMoksha are to be in the custody of escrow agents PWC and Khaitan and Co.

At the time of signing the transaction agreements in 2005 we were a `100 crore company and vMoksha was having a revenue of `65 crore. Today, we have a run rate of over `800 crore and vMoksha is under `8 crore. According to the legal opinion received by us, the outcome of arbitration is unlikely to have any adverse impact on our operations.

There have been media reports on the financial irregularities regarding this issue. If you reflect back now-what is the message you are driving to the industry and the investors? Do you think your overall branding and credibility and corporate governance has taken a hit due to this issue?

There are no financial irregularities found against Helios and Matheson. It is now nine years after the transaction and no regulator has found anything out of the ordinary against the company.With specific reference to SEBI order, our company has appealed against the order to SAT and SAT upheld our appeal dismissing three of SEBI's findings as being incorrect and has reduced the penalty to `15 lakh.

The tribunal has held, it was cash that was transferred through normal banking channels. In the present case, when the share certificates along with the transfer deeds were executed by the sellers, the deal regarding the transfer of shares between the sellers and the appellant was complete and the adjudication officer in our view was in error in holding otherwise. We have already noticed that both clauses 2.2.1 and 2.2.2 had been complied with by the parties and therefore, the deal was complete".

Our business growth, our credibility with our clients and our track record of uninterrupted dividend distribution in the last 23 years is what matters. With a market cap as low as `50 crore in 2011, we redeemed FCCBs of $25 mn effecting a bullet payment of `110 crore in cash in July 2011.

Can you comment on your fiscal health at this point in time?

During the last fiscal ending September 2013, our revenue and profits grew YoY at 43% and 69.6% respectively. Encouraged by the splendid performance the company has declared a dividend of 50% or `5 per share. These metrics must give you an indication of the company's fiscal health.

We are a 30 year old company head quartered in New York City and has been listed on Nasdaq for over 15 years and has some of the best known names in BFSI and healthcare sectors as its long standing clients. The company is debt free and has assets of over $5 mn. It has been making steady profits and the company paid out 50% of its profits as dividend during the last 2 consecutive years.

Last quarter ending Dec 31, 2013 was yet another quarter of robust performance. Both revenue and profits have increased in a healthy manner.

Revenue has increased by 43.1% YoY while profits have increased by 51.6% YoY. Largely, this is helped by our focus on the US geography and on the banking and financial services and healthcare and insurance verticals. BFS sector grew YoY at 50.1% and healthcare and insurance grew at a very healthy and equally comparable 43.1%. These two sectors contributed handsomely to the company's growth both in terms of revenue and profits. Coming back to the present times, in the last two years IT outsourcing has changed a lot- and it's a crowded space with lots of service providers. Where do you think your sweet spot lies in?

How do you plan to re-energize your brand and positioning in the market?

We would like the path breaking work we are doing for our clients to set the benchmark. It is the client's speak that matters most. We have built a strong organic growth engine and we expect our existing clients to drive the growth. Our new service offerings will continue to keep us in areas of high growth.

In the last two years, IT outsourcing has changed a lot and it's a crowded space with lots of service providers. Where do you think your sweet spot lies in?

We continue to pursue high growth opportunities. We are investing in sunrise sectors very popularly known as SMAC, which is social media, mobility, analytics, and cloud. In each one of these new services we have made significant investments. We made significant progress in terms of broad basing our offerings and reaching out to our existing clientele. We have had a fair amount of success particularly in the areas of cloud, mobility, and analytics. We are very excited about the growth opportunities these new areas present and we believe these investments would help us to keep up the growth momentum in the coming quarters. Last quarter ending December 31, 2013 was yet another quarter of robust performance. Both revenue and profits have increased in a healthy manner.

Finally, what is your outlook for the company FY14 closure (topline-bottomline as compared to FY13) and FY15 guidance?

We do not have a practice of giving a formal guidance but if we look at the last two years' record we have grown at over 40% YoY. Nasscom estimates the industry growth rate to be between 12%-14%. I think we will be way above the industry average and we hope that we will be able to sustain the growth momentum we had created in the last couple of years, on a larger base.