This is the story of a remarkable turnaround. Here’s the story in numbers. Between FY14 and FY15, this company’s revenue grew 15.2% from Rs 771.64 crore to Rs 888.78 crore; the growth rate in line with the industry average growth rate. Sure, this doesn’t qualify for a turnaround even if the company had declining revenue historically.
The company’s EBITDA swung from a loss of Rs 161.72 crore in Q4FY14 to a positive Rs 30.45 crore in FY15, while its profit-after-tax for FY15 was Rs 14.77 crore against a net loss of Rs 271.59 crore in FY14. This awesome swing in the profit performance is undeniably a turnaround story.
The company is AGC Networks, part of the Essar Group, it has been a part of Indian IT for nearly 29 years, but then underwent various transitions and name changes since inception. It started off as Tata Telecom in 1986, became Lucent Technologies under AT&T and Tata, became Avaya Global Connect when Avaya Inc, bought out the Tata stake, and in 2010, Aegis, an Essar group company took control and named the company as AGC Networks.
The man who orchestrated this masterful turnaround was Anil Nair, MD and CEO, AGC Networks, who came into the company around May 2014, as part of his second innings in the company as its executive leader. Anil walked into the company at a time when the company had plunged into loss amounting to Rs285 crore, almost a near death experience. Exactly a year later, in May 2015, Anil Nair posted 15% revenue growth, wiped out all the losses, and inched into the positive territory, posting a net profit of Rs 14.77 crore.
Excerpts from an interview with Anil Nair, MD and CEO, AGC Networks.
What pulled you into a sinking ship that AGC Networks was?
As you know, I was the MD of Avaya Global Connect as the company was then called. At that time the company was in great health and was growing profitably. Two years later, the company posted Rs 285 crore loss. But for me it was an unfinished journey. And the fact that the loss was formidable and the operations were gridlocked was a challenge to my turnaround skills. So I decided to pick up the gauntlet and returned to AGC Networks.
You seem to thrive at turnaround challenges. How do you do it?
This is my fourth turnaround and the biggest I’ve attempted. I now have a tested method that involves seven stages of radical change: People, strategy, culture, optimization, systems, partners, and customers.
The first is the most important—getting the right people on board and getting those that don’t fit in off the bus. Without the right leaders leading toned up teams, no change is possible. Clarity around strategy comes next and that encompasses the purpose, positioning and quality philosophy of the company. Culture is about reinforcing all of that with every AGCian on the globe and reiterating it so it becomes a way of life. And the right culture precludes the need for micromanagement, which is why it’s doubly important. Then comes optimization—of cashflows, costs, people, productivity, partnerships, and the portfolio. Next on the change agenda are systems and processes so that all activities are executed systematically and consistently. And finally, collaborating with partners and customers to create win-win. Once this stage is reached, herculean efforts have to be made to get on to the right growth trajectory with quarter after quarter improvements across critical performance metrics.
Sounds like a neat formula. But I am sure that it is not as easy as it sounds. What was the thorniest stretch?
To gain the confidence and make people believe that a turnaround is possible. Without that no strategy will yield result. It took two months for the team to realize that a turnaround was indeed possible and was underway. But it took till after the first quarter’s results were published for the resurgence in the confidence of our customers, global alliance partners, and all our employees. And that was because the impossible had been achieved—a return to operating profit in just one quarter from Rs 285 crore loss the previous year!
What about winning trust with the external constituencies? How did you walk the talk?
We fulfilled commitments to OEMs, customers and employees, and made that an unfailing habit. We stuck to deadline —delivery deadlines, payment deadlines, project deadlines and reporting deadlines. And to do that we selected five OEMs as core global alliance partners from the 126 that we had. We stopped low-margin business just for topline, stuck to our core technology competency areas, worked on deals with clear line of sight to the last payment and sharpened our project management skills. Today, we are seen differently, as a trusted partner that delivers value and fulfills commitments. AGC specifically differentiates itself vis-a-vis responsiveness, execution excellence, and design superiority which forms the acronym RED.
As a listed company, how do you plan to win investors’ trust?
We aspire to show quarter after quarter improvement (QaQ) across key parameters including the topline, gross margins, costs, CUSAT, DSO, operating income, and productivity. That’s what investors will surely appreciate.
How would you describe the short-term outlook for AGC Networks?
Unrelenting focus on delivering Return on Technology Investments (ROTI) to its customers coupled with quarterafter- quarter (QaQ) improvements have enabled AGC’s emergence as a brand of choice for enterprise and midmarket customers, in the quest to deliver best-in-class customized technology solutions globally.
Sharp focus on core and strategic areas in each of AGC’s geographies underscores our overall business financials. International business has stabilized under the leadership of Sanjeev Verma. Middle East & Africa has attained significant growth in the year. The APAC geo is now being consolidated under the leadership of Peter Jayaseelan. Our new office at Philippines and anticipated opening up of opportunities in Singapore and ASEAN will help AGC set the pace. India continues to be at the epicenter of AGC’s Center of Excellence drawing on innovations at various countries. Driving the networking of AGC’s global tech resource pool reinforces that agenda.
You plan to scale up globally. What’s the biggest change needed for that?
First, we’re making the transition to becoming a true solution integrator from a system integrator. That change involves knowing vertical markets and their drivers, the ability to craft business relevant solutions and deliver return on-technology- investments for clients. We’re in the process of integrating our global technology resources to seamlessly do that. We now operate across four technology quadrants, namely unified communications, network infrastructure, cybersecurity and enterprise applications with an all encompassing services cover. Clients are beginning to realize the benefits of a total landscape partner rather than fractured technology mandates.
Where do you stand in these areas currently?
We are in the four technology quadrants mentioned above. That’s where we are laser-focused. While we have a formidable presence in unified communications and are seeing rapid growth in network infrastructure and datacenters, the future will be more about virtualization and SDN. We are seeing huge traction in our third quadrant cybersecurity across the globe and a lot of headroom in the fourth quadrant, enterprise applications. As regards to services, it’s 48% of our global business and growing bigger.
What’s your geo strategy?
We are in five geos now and will move to consolidating that into four theatres soon—Americas, EMEA, APAC, and India. In the Americas our current plan is to grow Chicago, Florida and the NY area; in EMEA we will grow KSA, Abu Dhabi and Tanzania this year and look at entering Europe next year; APAC will see increased concentration in Philippines, Singapore, and New Zealand; and added India growth will come from Hyderabad and Gujarat. We are ensuring our quadrant template is evident across geos so we get a seat at the global high table with all the global OEMs that we represent.
What would help in making the new AGC?
Clients want an authentic, transparent, efficient partner that adds value to their business efforts. Our sincere effort at accelerating our customers’ business is beginning to get recognized. Client, OEM and employee focus on a common, customer-centric goal acts like a force multiplier.
What are AGC’s differentiators?
Critical mass and global resources are huge differentiators for customers. Without that, and without robust scalable systems, smaller players will find it hard to battle it out sustainably, and taking shortcuts can be catastrophic for them.
Acquisitions are a growth strategy for midsize companies like AGC. What are your thoughts on M&A?
We operate both tracks, organic as well as inorganic growth, so relevant acquisitions will be on the cards across geos that will help us gain entry to exciting new geos, new verticals or a set of marquee clients. One thing is for sure, our acquisitions won’t be to bulk up revenue because our theme is profitable growth. As an example, take AGC’s recent acquisition of Ensource business in the US which is in line with its focus on delivering ‘Return on Technology Investments’ to its customers. This acquisition increases AGC’s expertise in the healthcare vertical by adding Ensource’s strength in innovation, technology, and customer experience.