Bharat Desai, chairman, co-founder and CEO of the company, told Computer Business Review this week: We are working to a plan we call 1-5-10. Basically, we are aiming to achieve $3bn in annual sales and a market cap of $5bn by 2010.
These are lofty targets for the applications services vendor. Its full-year 2006 sales reached just $270m and on October 11, the company’s shares traded at just over $45, giving it a market capitalization of $1.87bn. While the company’s future stock market valuation will depend as much on the global economic environment as much as its own performance, its recent sales growth suggests that acquisitions will be needed if it is to hit its revenue goal.
In the first six months of 2007, Syntel’s sales rose by 22% to $156m, putting it on course to surpass the $300m mark this year. The company’s M&A activity to date has been limited in both volume and scale and it would require a much bolder move to bring in the extra $2.4bn in revenue it would need to supplement its organic growth to meet the $3bn sales goal in the next three years.
Desai highlighted several main factors that he sees driving the company’s growth. He said; Talent management is vital – we need to attract, nurture, and give opportunities to the top talent in the industry. We are also making huge investments in our infrastructure, constantly creating new offerings and developing deep business skills.
Syntel’s capital expenditure is expected to reach between $30m to $40m this year as it builds out its centers in India. It added more than 3,000 new seats in the country in the first half of the year at operations in Chennai and Mumbai, and is aiming to hire between 3,500 to 4,000 new employees in 2007.
But if you had to pick out a likely acquisition target in the IT services sector, Syntel would probably near the top of the list of contenders. With the large majority of its 9,200 staff based in India, the company has the sort of US-headquartered, mature global delivery capability that Capgemini and Computer Sciences Corp were pursuing when they each paid $1.3bn apiece for Kanbay International and Covansys respectively.
So is Syntel in the shop window? Desai said: Our excellent track record means that we have got noticed more and more. But we see a tremendous opportunity for growth and we have got our heads down and are focused on realizing maximum potential for our shareholders.
Desai also believes that recent M&A activity among second-tier global sourcing specialists has created an opportunity for Syntel. He said: The takeover of Covansys, Kanbay and Keane has left a vacuum in the market for companies looking for mid-tier suppliers, who have a big opportunity to meet the demands of clients who are looking to work with nimble and responsive organizations.
Like many within the outsourcing vendor community, Desai is bullish on the prospects for his company if the squeeze in the credit market triggers a broader economic slowdown. He said: In the financial services sector, we are seeing Lehman Brothers, Bear Stearns, and Goldman Sachs all announcing major cut-backs in workforce, but it does not mean that their workload will reduce. This is where global sourcing companies can help immediately by enabling them to buy bandwidth.
