Baring Asia not in hurry to exit Hexaware Tech

R Srikrishna, CEO, Hexaware Technologies
Baring Private Equity Asia, which owns 71 per cent stake in Hexaware Technologies, is not looking to exit the company any time soon, Hexaware's chief executive officer R Srikrishna told Business Standard.

"Their outlook is very much a long term," he said. "They have completely bought into this strategy (the new strategy, wherein the company is looking at using automation to cut clients' cost and help them become digital - the company calls it Shrink IT, Grow Digital)."

The private equity firm came on board in August 2013, when it bought 41.8 per cent stake from the then chairman Atul Nishar and General Atlantic Global Investments. By November 2013, it raised the stake to 71 per cent through an open offer to the shareholders.

There has been speculation about Baring Asia exiting Hexaware since the beginning of this year by selling its entire stake in the company. Srikrishna said the firm had denied it repeatedly.

"This strategy will take a number of years to execute and deliver good results. What will happen years down the line when ownership changes in part depends on what the ownership is. All that is completely theoretical and there is nothing in the near future. In fact, they are very committed, staying in the investment for a long time." He added: "It is not happening this year and I would be very surprised if they do this in a next few years."

After Baring came in, Hexaware's consolidated revenues grew from Rs 2,285 crore in 2013 to Rs 3,123.5 crore in 2015.

While, according to Srikrishna, there has not been any direct correlation between the ownership and the organisation, what changed was the top management in the company.

Srikrishna ,who took hold of the company in July 2014, said, “When Baring came in, there was no direct change in the organisation because of change in the ownership..After I came in, we also changed fair bit of our leadership. We augmented many, we changed some. And roughly half my top leadership now are the people who have joined in last year and year and half. That’s has bought a change in the organisation in many dimensions. We became an organisation that is more focused on customers, more focused on our employees and more focussed on innovation. At the high level, those are the three thing that changed.

Expansion plans

In terms of having access to Baring Asia’s client, as what usually happens when a private equity firm invests in a company, Srikrishna said that is not the case with the company but may change in future.

“Specifically on having access to Baring clients, we have not seen it so far. Historically Baring’s portfolio has been smaller companies. In fact, we are one of its largest companies it has invested in. And smaller organisations are not necessarily our target,” he said. “But now they (Baring) have a new fund, a much larger fund, where they are actively investing in larger companies right now, so it could change things for Hexaware soon.”

The mid-size IT company has just started with its new strategy, which according to Srikrishna, Baring is very interested in.

“Our strategy is encapsulated in two phrases. Shrink IT and grow Digital. Many customers would like to see reduction in spend in what we describe as commodity IT— application support , testing , infrastructure and BPO work. We think for these service lines, 30-50 per cent of human labour can be replaced with robots and machines. First part of our strategy is to deliver to that desire using automation. Our new customer wins and new deals, a major part of them is around automation,” he explained. “The second part of our strategy is to grow digital. From the digital perspective, the ultimate goal is to deliver straight through processing in areas which impact customer experience. Also in back office areas, it is about cost and efficiency. And we think the first part will fund the second part. While there is a desire, there is no money, and the money will come from shrinking IT.”

In the recently announced first quarter results, the company posted a revenue of Rs. 870.62 crore, up 12.4 per cent over last year. Hexaware's profit after tax (PAT) rose marginally by 1.1 per cent to Rs. 99.9 crore as compare to last year, while sequentially PAT rose by 18.8 per cent.

"We are on journey where profitability improvement will get better. While we have done well on quarterly basis, with the new strategy in place, our year on year growth will catch up," said Srikrishna.

M&A is becoming another important strategy for the company.

“M&A is one of the important strategies. We think we are now ready  and that we can start digesting acquisitions and we are beginning to start shoring some capital in the organisation and that the reason we stepped down the dividend," he said.

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