MindTree Consulting, an international IT and R&D Services Company that delivers business and technology solutions through global software development, has listed with a good premium of 47.5 per cent over its offer price of Rs 425 per share on the NSE, which was as per the analyst expectations.

CMD of MindTree Consulting, Ashok Soota anticipates that the company will grow better than the industry, which is expected to grow 28-30 per cent. He informs that inorganic growth has been contributing less than 8 per cent; they intend to take it up to 20 per cent. He also adds that the nature of growth for the company will primarily be organic. He also expects margins to remain stable.

Soota states that their next goal is to reach $1 billion in revenues; however, he has not set a timeline to achieve it.

Excerpts from CNBC-TV18's exclusive interview with Ashok Soota: 
 
What will your mix of revenues from services and R&D be by the end of 2008? Will hat have any margin implications - whether you can inch your margins up from the current levels?

The present mix of the two businesses is approximately 75 per cent from IT services and about 25 per cent from R&D services. We see both of them growing at almost uniform rates and the difference that can come over a period of time is that as we build more intellectual property, we get higher stream of revenues which comes in on a licensing basis. But by and large, the two businesses deliver similar net profitability, so overall; I won't say that the relative growths are going to have a bearing on margin movement in a significant way.

Given your business profile and your growth outlook and the kind of pricing that you are seeing for both ends, how significant are margins? Do you think you can expand your OPMs over the next couple of years?

We have a number of, what I call, low hanging fruits within Mindtree. First thing is that 4 per cent of our income goes as rental costs and we will move progressively into our own facilities; the IPO in itself and the money we are going to get from this, will help us towards that.

I think, we could progressively bring this number down to at least 2 per cent in a 2-3 year period and that's quite significant in terms of margin movement. Our weighted average experience profile of the Mindtree team is close to five years, that's almost double of what the industry average is; we do not intend to come down to those levels but there again that's a significant margin lever.

We have a number of low hanging fruit areas in addition to improving continuously the mix moving up, getting a higher proportion of our business from consulting as well as intellectual property.

Would you say you hold a band of about 18-19% or do you think you can better that a bit in the next few quarters? 
 
I do not think this is going to respond so significantly in terms of quarterly movements and frankly our aim is going to be to talk about annual guidance as we go ahead. Some of the important things, I just mentioned which I think are very significant, are not marginal improvements but they take the time to play for example, some of our new facilities we will be operating out of our own SEZ facility in Chennai, which gets commissioned in October. So it will be not be just a gradual incremental movement but also certain step jump improvements as we go ahead. 

Can you talk a bit about the kind of pricing strength you hope to see? There seem to be analyst concerns that many of your deals don't quite have an annuity component. How would you react to that?

On pricing, I would say it's been strong. Our pricing compares favourably with all of the larger players; we have been able to see upward tractions of about 3-7 per cent, these have more then offset any cost increases which have come from people cost as well, maybe even the rupee appreciation.

We are very confident on that front because we are seeing both renewals as well as new orders being able to come in at higher pricing and we have not seen any resistance at these levels. In terms of the fact, that we have got a relatively lower annuity proportion as compared to the older and the larger players; I think that's inevitable as you grow to become a company where you build up a base of applications you develop, you then sustain them through your maintenance.

We have also started new practices - testing and tech support to name a couple, fairly recently, they are both growing, and have got a very higher proportion of annuity income. So we do see the annuity proportions growing but it will be lower and to that extent, you might say that there will be a little lower predictability which is also why we are talking of annual rather than quarterly guidance. But we see that number going up from approximately 30% to at least 5-7% points each year.

What kind of CAGR can one expect from your company over the next 2-3 years? I am not asking for specific guidance - just a broad number that your investors would want. Is it a 30-35-40% growth company?

We visualize that the industry will be probably growing at the rate of 28-30 per cent next year. We are fairly confident that we have the ability. We must be able to do so, being a relatively smaller company as compared to the giants, then we will go significantly higher then the industry average. If you see the past then clearly on a four-year basis we have grown much higher than the industry average and I think we should be able to sustain that over the next 2-3 years.

By when do you expect to become a billion dollar company? 
 
That is a forward-looking statement, but I would just like to tell you that we took six years to be a $100 million, the larger players today took somewhere between 12-20 years in their own time to reach those levels. I will be articulating a vision for our company, which says that our next goal will be a billion dollars. I intend to do that in the next month. I will not give you the timeframe on that right now because I think it will be too specific and too forward looking then but certainly we have the vision and we believe that capability and competence to be able to aim to be a billion dollar company.

I believe you might be looking at inorganic opportunities as well to grow. Anything in the pipeline? 
 
I would say that the basic engine of growth will be organic as it has been but obviously the IPO in itself gives a little more flexibility or little more cash to be able to use for this and there are plenty of opportunity areas that we do want to be able to explore.

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