Mr. Nitin Shah, Managing Director, Allied Digital, completed Engineering from VJTI, Mumbai and obtained his BE (Electrical) degree with a distinction in 1977 followed by Post Graduation in Management from JBIMS, Mumbai. With short stints in Crompton Greaves & Nelco, he got a break with CMC where he worked for 5 years as a Customer Support Engineer and then with Hinditron for 2 years. During these years, he got an extensive exposure on mainframe maintenance and serviced large enterprise customers until he moved on to create his own company and started consulting with top global clients.
Allied Digital Services Ltd. is a global IT Services and Solutions company which provides a range of IT Infrastructure services and solutions including managed services and physical and information security solutions to leading Indian and global corporations. Allied Digital is among the few companies with a truly pan India direct presence in 132 locations across the length and breadth of the country – servicing over 40,000 pin codes on the same day. Allied Digital is also present across 40 states in the USA, through its acquisition of En Pointe Global Services. Allied Digital is an ISO 9001: 2000 certified company with a global command centre certified under ISO 27001:2005 as with management systems certified under ISO 20000-1: 2005.
In an exclusive chat with Yash Ved and Hemant P. Maradia of IIFL, Mr. Shah says: "Our current order book is worth Rs4.35bn in the services division and Rs1.25bn for solutions."
Brief us about your journey so far?
We started in a small way servicing large corporations on their mainframe computers. We then started working on maintenance and service of PC’s which revolutionized the way people do their business.
When we came with our IPO, we were a pure play domestic player. About 97% of our revenue came from India. But, then we wanted to venture into the global arena more from a risk diversification strategy as well as shoring up our margins by offshoring some of the work thus obtained. En Pointe acquisition was a step in that direction and we are happy with the way the acquisitions has panned out.
Comment on your Q4 financials?
Consolidated Revenues for Q4 FY10 were Rs193 crore; up by 21% Y-o-Y and 8% Q-o-Q. EBITDA margin stood at 21.3% for the quarter, reflecting a growth of 360 bps Y-o-Y.
Net Profit for the January to March quarter was Rs310mn; up by 41% Y-o-Y and 14% Q-o-Q. Diluted EPS for the quarter was Rs. 6.67 on equity face value of Rs. 5.
The last fiscal was a challenging one for the IT industry - both domestic and international. IT spends across the globe showed a substantial decrease. But, despite the slowdown, our topline grew by 28% last year while the bottom line rose by 40%.
How much growth came from acquisitions?
Actually, a total of US$42mn came from acquisitions during the fiscal year 2009-10.
We have acquired two companies. We acquired 51.05% stake in Digicomp Complete Solutions Pvt Ltd to grow in the hardware repair services market. It was a very small deal worth about Rs120mn or US$3mn. We are very happy with that company as it has shown almost 100% growth this year. What’s more, Digicomp has formed a joint venture with a Singapore-based company.
We acquired the services arm of En Pointe Technology Services that was listed on the Nasdaq stock exchange. It was purely a product re-seller. Its obligatory services business was worth about US$30mn. We were interested only in that. So, they carved out that division and we formed a joint venture. The name was changed to En Pointe Global Services. We have 80.5% stake and En Pointe Technologies has 19.5% stake. This company gave us access to the US geography, American customers and a great sales team.
Are you looking at fresh acquisitions?
At any given point, we keep scouting the market for acquisitions that will be value accretive to the Company. While we looked at 7-8 opportunities in Europe, the valuations and the financials of the target companies that were shortlisted did not inspire confidence. Further, the promoters of once such company wanted a complete exit clause right from the beginning which did not make sense for us.
We are constantly looking at opportunities for acquisitions. But, we are not in a hurry. This is the only way to enter into new geographies.
What is your business mix?
We provide large scale IT solutions as well IT services. However, historically we have been an IT Services company with a very strong service delivery engine. Moving forward, we plan to focus on IT services and more importantly Infrastructure Management Services (IMS) and Remote IT Services (RIMS) for strategic reasons.
In the fourth quarter of FY10, IT services accounted for 56% while the balance came from the solutions business. There has been a concerted move to services from solutions since the IPO when 33% came from services and 67% came from solutions.
Our business focuses more on non-discretionary expenditures which are very vital for the ‘keeping the lights on’ of an organization in the form of IT Services and Managed Infrastructure Services.
Any fund raising plans?
We did a QIP in November last year. We raised about Rs2.31bn or US$50mn. We had raised the money as we were close to some acquisitions.
What kind of lessons have you learnt from economic slowdown?
The rules of game have changed in the IT industry after the global financial turmoil and the ensuing economic downturn. The financial crisis happened due to lack of adequate regulations. US banks took large risks but nobody knew the impact of those risks. This represents a big opportunity. Gartner and Forrester have predicted that the information security market will grow multifold. We have set up a state-of-the-art center three years back. We manage the entire information security lifecycle.
We are one of the early movers in this space. A lot of new opportunities are coming, such as virtualization and cloud computing, and we are geared up for the same. The industry is also shifting from capex driven model to an opex driven model that we have taken the lead in implementing with many customers across the globe.
What are you plans for the solutions business?
We don’t supply products to the US market. We only provide professional services as part of our solutions business.
In India, we do provide solutions. It also consists of products. Margins in this business are marginal. Everyone is fighting in this space, whether it is Dell or HP.
These products are not ours. We use best of breed products. We get lower margin and sometimes pass-through margin. Overall margin is somewhere around 12-15%.
Every solution that we deploy, the customer eventually wants us to support it for the entire life cycle. So, immediately after one year warranty is over it is converted into services revenue. In the beginning we might not earn that much but the same starts rising as the years go by.
We see a spurt in the Government space. There will be huge spending on e-governance. We are also bidding; sometimes alone and sometimes with partners.
We can keep growing the solutions business by 20-25%.
What is your current order book?
Our current order book is worth Rs4.35bn in the services division and Rs1.25bn for solutions. The services contracts are to be executed in the next 12-18 months while the solutions orders will be completed in three months.
Brief us about your international operation?
We have an office in Singapore. We have a presence in South East Asia, Australia, the US and Europe. We are not going to the underdeveloped markets like Africa and the Middle East.
We have a presence in Australia also. But, there we are going through partners. We have signed up with 4-5 large systems integrators to help them service their customers by offering a cost-effective service delivery. The customers are owned by them. They then outsource to us for service delivery.
Brief us about your capex plan?
We spent about Rs450mn last year. This fiscal (FY11) also we might spend about Rs500mn as capex.
What is the promoter holding?
Our promoter holding is 45%.
What is your message to the shareholders?
We are into the industry that is fast growing and there is a new wave that is happening which is infrastructure management services. My view is that our best is yet to come.