The outperformers 2020

What’s happening at Coforge is more than just a name change

CEO Sudhir Singh believes his new team and an aggressive incentive structure could soon take the company to the billion-dollar mark 

What’s in a name? asked the Bard, but then it is not very often that successful companies change their name, especially in the midst of a once-in-a-generation pandemic that has flattened growth across economies and geographies. But, that’s exactly what the Noida-based software services company, NIIT Technologies, did this August by changing its name to Coforge, for “working together”. The name change comes more than a year later when the erstwhile promoters, NIIT, handed over the reins of the company to Baring Private Equity in April 2019. This is Baring’s second acquisition in the IT space, as it already owns 62.7% in Hexaware Technologies.

NIIT Tech wasn’t exactly an exciting mid-tier IT company but that changed nearly three years back when Sudhir Singh, a Genpact veteran, took charge in 2017. He sharpened the focus on insurance, BFS, travel and healthcare, revamped the leadership and operating structure and, more importantly, implemented an incentive structure that ensured that rainmakers got paid at a faster pace. “We looked for leaders who were comfortable with scale, knew how to build scale and were hungry for growth,” says Singh. More importantly, instead of CEOs sitting out of India, NIIT Tech moved closer to its clients.

The change has worked wonders with revenue (Rs.29.91 billion to Rs.41.83 billion) and profit (Rs.2.80 billion to Rs.4.44 billion) growing at a healthy pace over FY18-20. Manik Taneja, analyst at Emkay Global Financial Services, says, “The senior leadership deserves credit for the superior growth metrics in recent years that changed the company from a growth laggard to a leader on growth.” However, following the pandemic, NIIT Tech given its significant exposure to the travel and transportation vertical, 19% in Q1FY21 and 27% in Q4FY20, saw revenue decline sharply. Within the travel vertical, airline revenue contracted 62% quarter-on-quarter in dollar terms and accounted for 5.5% of the mix versus 13% in Q4FY20. The management has not counted on recovery in airlines in its FY21 guidance.   

Besides travel, transportation and hospitality, all other verticals (BFS/insurance/others) grew 8%, 1.4% and 5.9%, in dollar terms, sequentially in Q1. Despite the pandemic-led downturn, the management expects strong sequential recovery in Q2FY21 and has guided for mid-single-digit growth for the entire fiscal. “Despite the slight miss in the June-quarter, Coforge’s strong outlook for FY21 drives us to increase our revenue growth and margin assumptions,” says Taneja, who has also increased earnings estimates for FY21-23 by 4-7%. 

As the company expects growth to keep ticking, it has added a new vertical in healthcare and has also set its sights on hitting a billion dollar in revenue. Though Singh did not reveal the timeline for hitting the number, he wants to build on the momentum that saw the company touch $600 million from $400 million in three years. While BFS and insurance remain the primary driver of growth, Singh expects travel to eventually make a comeback and its healthcare vertical to grow into a sizeable business. The prime mover at Coforge shares more:

Can you briefly tell us about the revamping exercise, which has been underway for the past three year?

We grew from being a $400-million firm to a $600-million one and this has been driven by multiple factors. One is the change in the operating culture of the firm. The incentive structure and compensation philosophy saw an associated change. The large deals commission has gone up nearly 4x and annual increments have also seen a similar expansion. Anyone who was pivotal in the firm securing or starting a material relationship for a large deal were given a payout that was 3.8x of what they were rewarded earlier. More importantly, the payout was not spread over multiple years, it was to be given out faster. Our attrition levels are the lowest in the industry. 

Second is the revamping of the leadership team. 11 out of the 12 CEOs have been hired over the last 30 months. 60% of their directs have also been hired over the same period. Also, 70% of the executive team is sitting in the client markets. Third is a shift in strategy — we call our approach “transform at the intersect”, that is, we do not look at constructing solutions through a tech lens alone. So, for relevant solutions, we also need to understand the industry processes. Four is by delivering digital and not just talking digital. While our digital plus IP portfolio revenue is likely to hit 45% of our total revenue in the short term, we apply a very rigorous lens on what revenue can be classified as digital. 

What is the proportion of revenue from your non-core verticals?