Spotlight

The reshaping of Mastek

After periods of marginal growth, Mastek is gearing up for a better year with a revamped strategy, say Venkatesh Ganesh and Chitra Padmanabhan

The idea of Mastek germinated in the drawing room of a colleague of Ashank Desai. The name Mastek comes from ‘Management and Software Technology.’ Right from day one the company started application development for Indian companies. This was followed by a small foray into product development. The company developed an ERP package named Mamis, besides other products such as Goldmine, a depot sales system, and Elixir, a software package for life insurance companies. The product strategy did not work as envisioned, so Mastek started focusing more on software services with emphasis on the European market.

European odyssey

"We insist on positioning ourselves as a solutions company and not a pure-play services company, which gives us the wherewithal to handle complex projects in the international market " -- Ashank Desai Chairman & Managing Director Mastek

Mastek's entry into the European markets could not yield them the same volumes as the US market offers. The company therefore shifted its attention to the US to improve its bottomline. In addition, Mastek made a renewed thrust on high-end services.

“The declining revenues from high-end services (though a small percentage of total revenues) is a cause of concern for Mastek,” says an analyst with one of India’s leading equity research firms. The company also faces immense pricing pressures when it comes to software services and even outsourcing-related projects, which has resulted in it bagging relatively fewer projects. Counters Ashank Desai, chairman and managing director of the company, “The order flow reduction is not due to pricing but due to postponement on the customer side.”

Whatever the reason, on the revenue side the company did not witness much contribution from the US. Mastek tackled this by entering into a joint venture with US-based Carreker Corporation, a provider of technology and consulting solutions for the financial industry. Mastek now expects the US to drive revenue growth and Europe to remain stable.

Partner and grow

After a long duration of pressure, the company has tasted some success in the telecom, government, education and retail verticals. The largest contributor to Mastek’s revenues, financial services, grew sequentially at a healthy rate during the second quarter of 2004. Further, Mastek’s operations in Europe continued their growth, contributing 56 percent to the overall revenues.

The last two quarters of 2004 were particularly good for the company. They attribute this to a change in strategy. Explains Desai, “We have been focusing on large projects and outsourcing engagements from global majors for the last couple of years. We also narrowed our vertical focus to insurance and financial services where we have good domain expertise.” This strategy yielded good results when the company bagged two Fortune 1000 clients, Fidelity Investments and Cuna Mutual. Particularly significant was the 10-year, £35 million contract awarded by British Telecom’s SI arm, Syntegra, as part of a national programme for IT within UK’s National Health Service (NHS). Mastek also strengthened its relationship with Siemens in Germany, receiving the ‘Supplier-of-the-year’ award from Siemens Dematic AG for the third year in succession. In the applications outsourcing space, Mastek managed to win projects such as NHS Spine and London Congestion Charging (LCC) in the UK.

“We insist on positioning ourselves as a solutions company and not a pure-play services company, which gives us the wherewithal to handle complex projects in the international market,” explains Desai. A case in point is the recent LCC, a fee levied on motorists entering the central London area. Mastek says this is one of the most complex and largest projects implemented on Microsoft’s .NET platform. Another project called the NHS Spine involves patient records. The NHS care records service database is shared nationally with clinicians and medical practitioners. This ten-year contract began in January 2004.

The company is pursuing a partnership strategy for bagging clients in Britain. “We bid for the Spine project with Syntegra, a leading SI and consulting company,” states Desai. So is this a case of sub-contracting? Replies Desai, “It is not a sub-contracting system where the other company gives us a part of the project. We are very much in the front-end with our partners.”

In the case of a TCS or Infosys, their sheer size enables them to go solo and bag huge projects. What about Mastek? Affirms Desai, “It is not that we cannot win big projects. In case of a big project such as NHS, part of the work is in the area of hardware and databases which are not our core areas. We understand this, and are happy with the partnership model.” The company’s other key projects include ePolicy Solutions (for which it has set up an offshore development centre) for the insurance vertical, and the Siemens Postal Automation Project.

Apart from partnerships, the company has entered into a joint venture with Deloitte and Capita Mastek BPO. The Carretek venture (in the US) is in the area of back office payment processing services. Carretek was formed as a joint venture between Majesco Software (which is Mastek’s US arm) and Carreker Corporation. Through this venture, the company is banking on broadening its footprint in the US market.

Explains Desai, “We definitely want to increase our presence in the US, and feel the need to grow faster there compared to Europe or other regions. Our strategy of focussing on insurance and financial services will help us achieve this.” Carretek will enable financial institutions and their processors to realise the benefits of BPO and offshore IT services. The joint venture will offer FIs outsourcing services such as global sourcing strategy development (consulting, methodology and tools) to help them exploit offshore outsourcing opportunities. By outsourcing selected processes to facilities in Mumbai, Mastek expects to reduce the net costs to banks for outsourced payment processes by 35-40 percent.

Pay it forward

Mastek has 14 customers in the insurance space. The company has also set up a dedicated insurance centre which consolidates all insurance projects so as to leverage knowledge across team members. Earlier, the company was following a country-based model wherein it had established strategic business units in different countries. This has now changed to a model where the entire organisation is structured along business practices.

On the BPO front, Mastek is focusing on partnerships and alliances for developing its business. During fiscal year 2003-04, Mastek and the Capita Group formed a joint venture. Later, Capita acquired 60 percent of Mastek BPO, a wholly-owned subsidiary of Mastek.

Desai wants the company to earn approximately 50-60 percent of its overall revenues from the US in future. While Mastek is not planning any acquisitions as of now, it is not ruling out the possibility of acquiring companies either. “If presented with the right opportunity, we are not averse to acquiring companies provided they add new skills, or expand our offerings in the current space,” states Desai. In the healthcare domain, Mastek is targeting US-based third party administrators through its own BPO outfit.

From beginning operations in a makeshift apartment to the new development centre at Pune inaugurated in October 2004, Mastek has certainly traced an interesting path.

Boom time

During the JAS 2004 quarter, Mastek’s profits jumped 301 percent with revenues increasing by 30 percent. The company announced a total income of Rs 130.5 crore for the quarter against Rs 100.7 crore for the corresponding quarter of 2003. Revenues from US operations grew by six percent over the corresponding period in 2003, and from Europe by 70 percent. At present, the US contributes 18 percent while Europe contributes 56 percent to the group’s revenues. During the quarter, Mastek acquired three new customers, and increased its active base to 56 clients. In the last quarter conference call, the company proclaimed its expectancy of growing faster than the industry. One factor that can enable this growth is the marginal increase in IT spends; another is the focus on niche areas such as insurance and financial services. All this should bring the company back into the reckoning.

venkatesh@expresscomputeronline.com

chitra@expresscomputeronline.com