Ravishankar G., Managing Director and CEO, Geometric Limited

Ravishankar G., Managing Director and CEO, Geometric Limited, joined Geometric in February 2007 as the Chief Financial Officer (CFO), and has since played a key role in shaping the Company's strategic direction. Ravishankar assumed the responsibilities of the MD & CEO in February 2009. He has over 20 years of experience in the areas of finance, accounting and risk management in manufacturing and financial services businesses. Prior to joining Geometric, Ravishankar was the CFO of GE Healthcare - South Asia. During his tenure with GE Healthcare, he played a key role in turning the healthcare business around and growing it successfully in the South Asia region. Between 1994 and 2002, Ravishankar held various positions in the areas of risk management and corporate financing with GE, India. He started his career with Rane (Madras) Ltd., an automobile ancillary company, where he held various positions in the areas of costing, management accounting and financial accounting. Ravishankar is a Chartered and Cost Accountant with a Bachelor's degree in Chemistry. He is a graduate of the prestigious 'Experience Finance Leadership Program' by GE and has done an executive education program on 'Corporate Financial Strategies for Creating Shareholder Value' from Kellogg School of Management.

Geometric Limited was incorporated in 1994 and is listed on the Bombay and National Stock Exchanges. The company is engaged in the domain of engineering solutions, services and technologies. Its portfolio of Global Engineering services and Digital Technology solutions for Product Lifecycle Management (PLM) enables companies to formulate, implement, and execute global engineering and manufacturing strategies aimed at achieving greater efficiencies in the product realization lifecycle. The company recorded consolidated revenues of Rupees 5.98 bn (US$129.47 mn) for the year ended March 2009. It employs close to 3000 people across 10 global delivery locations in the US, France, Romania, India, and China. Geometric is assessed at SEI CMMI Level 5 for its software services and ISO 9001:2000 certified for engineering operations.

Replying to Anil Mascarenhas of India Infoline, Ravishankar G says, "We see an opportunity for building our pipeline in the coming quarters, as customers are starting to plan / work on outsourcing in areas that would help them".

Are you seeing a revival in the India IT/engineering services?
The Indian IT / engineering services sector has been significantly impacted by the global slowdown. But there are some positive signs that indicate that the market is moving towards a revival although in a cautious mode. However, I believe that this slowdown has brought the industry to another inflection point, similar to the one during the Y2K crisis. While optimizing cost and increasing leverage continues to be a top priority for the Indian IT industry, the economic downturn and slowdown in business flows is forcing the industry to relook at the proposition it offers to its end customers in a changing economic environment.

Tough market conditions and stringent environmental norms are increasingly expected to drive global customers to look at opportunities for partnering with the Indian IT / engineering services industry to help drive innovation as well as capital and operational efficiencies.

What feedback are you getting from clients regarding IT services budgets?
The economic slowdown had led to significant cuts in customer budgets and delays in customer spending/ decision cycles. Over the last couple of quarters, they have postponed investments in non-critical areas. But we are seeing customers now coming to the table to discuss their plans. We see an opportunity for building our pipeline in the coming quarters, as customers are starting to plan / work on outsourcing in areas that would help them, once the markets improve. I believe that the downturn has really hit the bottom, and thereafter, it can be expected to move back slowly as we move along.

To what extent do you see pressure on discretionary spending?
Discretionary spending is certainly under pressure and customers are approaching it very cautiously. Having said this, there is certainly a far more openness currently, in discussing projects and budgets, than there was a few months ago. We are seeing a slow but sure positive trend in customer’s attitudes towards spends on critical as well as discretionary spends.

Comment on your customer acquisitions
Twenty new customers were added during H1 FY10, taking the total number of active customers to 110. We continue to maintain strong relations with our key customers and partners, and see opportunities in terms of cross selling and up-selling our offerings to them.

Have clients asked for pricing cuts?
There has been pricing pressure from many customers in the past. But that has come to a pass. We have managed the pricing pressure through improvement in productivity and driving higher degree of offshore leverage through our low cost centers in Romania, India and China. We have been able to demonstrate improvement on bottom-line through driving operational efficiencies and leverage of costs and investments.

Forex losses had taken a toll on your profitability. What is your strategy regarding hedging?
We continue with our philosophy of hedging net foreign exchange cash flows on 12 months forward. At the same time our extent of hedges will be based on definite cash flow projections. We have had a lower FX gain/(loss) due to higher FX contract rates in Q2 FY10 as compared to Q1 FY10, and also due to a 0.6% decrease in average FX rate for the quarter.

A couple of years back we moved into the new FOREX hedge accounting policy. As per that policy we don’t do a mark-to-market. We park the gains or losses in the balance sheet, and move the corresponding gain or loss to the P&L in line with the realization of corresponding revenue.

What are your plans for recruitment?
Total recruitment for the quarter was 166. Recruitment going forward will be need based and will be in line with business requirements and market conditions.

Any specific areas where you would be interested in making an acquisition?
We are exploring a few areas to help us build competencies in certain areas as well as build scale. We are in the process of outlining our strategy and exploring a few options and we will make our plans known at an appropriate time.

How long do you see the tough times lasting? Could you rate the headwinds currently faced and what you are doing to overcome the same?
The global economy saw an unprecedented economic downturn, which left almost every market segment affected. While there have been indications showing positive movement in the direction of a recovery, the outlook is still cautious. We expect Companies to now focus on gearing up for the growth opportunities that typically follow such downturns, in order to leverage the upsides in market demands.

With the current economic environment, industries are faced with new challenges and newer drivers as global companies look for newer markets, new products or variants to address needs of existing and emerging markets and/or new governmental regulations (such as stringent environmental regulations).

While the current economic slowdown has led to significant cuts in customers budgets and delays in customer spending decision cycles, it is expected to throw up significant opportunities for players in the engineering services space, as the markets start opening up.

Global manufacturer’s need to come out with innovative products in the market, with better functionalities and at a lower cost, is expected to open up significant vistas for global engineering services. Driving more global engineering will help them drive cost as well as operational and capital efficiencies, thereby helping them drive competitiveness.

We believe we are well placed to address these opportunities as they start unfolding.

What is your offshore-onshore mix? How do you see it going ahead?
As per the delivery location distribution, our offshore service revenue is 66.24percent and onshore is 33.76 percent. The offshore leverage in terms of efforts has gone up at least by 2% points, it moved up from 83.2% to about 85%. This was due to our conscious efforts to bring some of the onsite revenues offshore, to ensure that our customers benefit from the price reductions that we can offer.

At the same time, doing this also helped us improve our margin. Our contribution margin significantly increased during this quarter, and coupled with this, the savings in manpower, software and facility costs helped us maintain a good profitability position.

You had initiated a major internal transformation and restructuring exercise. Tell us more about it and what impact have you seen?
We have been continuously evolving, over the last fifteen years, from a CAD/CAM products company to a leading provider of PLM, engineering and outsourced product development solutions and technologies. We have also moved from a partner-led business model to a direct -to-market system integrator business model in the last few years. More recently, we have initiated a number of initiatives to drive growth, such as an organization-wide restructuring exercise to create a leaner organization that is better equipped to meet customer needs. With the new structure in place, each business unit owns and drives their P&Ls, enabled by a de-centralized decision making structure devised to improve customer responsiveness.

We have established a ‘relationship management’ structure to ensure that the focus on our strategic partners and customers remains strong. This structure has helped us engage closely with our strategic customers, and understand and address their business problems more effectively.

With the slowdown in the global marketplace, it has been crucial for us to make sufficient provisions for the future and rationalize our cost base. With this in mind, we have tightly managed our cost structures. Reductions in SG&A, aggressive cash flow management, consolidation of subsidiaries, and sale and monetization of fixed assets are some of the initiatives deployed to achieve this end.

The foundation of any company in a knowledge sector is its people. We, therefore, lay strong emphasis on grooming and honing in-house talent through various initiatives, while providing them an environment that is open and conducive to innovation.

We have seen a very positive impact of the above exercise and this has reflected in the company’s performance over the first 2 quarters of FY10.

Brief us on your financials.
Geometric recorded operating revenues of Rs1281.93mn (US$26.54 mn) this quarter, as compared to Rs1293.23mn (US$26.61mn) in Q1. The Profit after Tax (prior to extraordinary items) more than doubled this quarter to Rs100.29mn from Rs47.16mn in Q2 FY09; a q-o-q rise of 17.7% from Rs85.23 in Q1 FY 10; whereas the PAT was Rs. 102.36mn an increase of 210% Y-o-Y and 22.6% Q-o-Q.

You have higher exposure to manufacturing. What steps have you taken to de-risk your revenue pie? What is the sense you are getting from your major clients?
Geometric started off as an R&D division of Godrej & Boyce, creating CAD / CAM software. With time and expansion Geometric ventured into "Enabling technologies" i.e. technologies which enabled engineering. Further on we expanded our footprint to global engineering services, product engineering and manufacturing engineering services through organic as well as inorganic means.

In the next few years, we see ourselves being an end-to-end global engineering services provider expanding our engineering services footprint into adjacent areas such as embedded systems, industrial automation, Manufacturing IT, capital asset management, sourcing and manufacturing solutions.

Geometric has traditionally had a significant exposure to the automotive segment. As a part of a planned diversification strategy, we had started expanding our footprint into verticals such as Aerospace & Defense, High Tech, Fashion, Oil & Gas, Machine Tools, Metrology and Healthcare to leverage adjacencies.

We have been proactively investing in building practices and offerings around these newer segments, in an endeavor to extend the benefits of global engineering, which are typically enjoyed by the traditional discrete manufacturers to these newer ‘non-traditional’ industry verticals. This has clearly helped us grow business from new markets and to a certain extent de-risk ourselves against the slowdown in the auto sector. Going forward, we see great potential in these industries, as well as industries in the batch-process manufacturing domain.

We plan to drive our business by mining our existing customers, attracting new customers, and innovating both in terms of business models, and new offerings and solutions.

We have expanded our delivery footprint in India recently with the opening up of an engineering delivery center at Hyderabad, with a view to leverage engineering talent in the region. Hyderabad is a one of the growing IT / Engineering hubs in India and this center is expected to further strengthen our global engineering delivery proposition to our customers.

Besides the order of DFMPro, to a European consumer goods major, have any similar orders come in?
This deal was won in the last quarter. Some of the significant contracts this quarter include:

• A multi-year product development contract from a major industrial OEM
• An engagement for PLM application development for a global Auto major
• A PLM integration and customization engagement with an ISV to service an end customer in the medical devices vertical
• A product design and engineering contract from an Industrial major
• An engagement with an Industrial OEM for PLM support
• An interoperability solution contract for a large automotive OEM
• A DFMPro customization order from a leading Japanese hardware company

You have an alliance with Gerber Technology to tap the fashion and apparel industry. What is the gameplan here?
Geometric has a unique methodology, D.R.A.P.E.D.™(Define Rationalize Attest Propose Execute Deploy) that helps in accelerating PLM integration by over 25 percent for Fashion and Apparel customers. Gerber Technology’s modular Product Lifecycle Management suite, for the business of fast fashion, enables customers to embrace PLM at their own pace.

Geometric provides a variety of Apparel PLM and enterprise integration services to help companies incorporate Gerber’s PLM software suite to link functionalities and geographies throughout their supply chain to enable efficiency and speed]to]market. This alliance will enable companies in the fashion and apparel industry to rapidly deploy Gerber’s established PLM solutions, while tightly integrating them to their ERP systems.

A concern has been your lower annuity revenues and higher project-based revenues. Do you think this could turn around as an advantage later?
The engineering services outsourcing industry by definition functions differently in respect of the flow of business in comparison to the IT industry. Typically even if a service provider has entered into a multi-year contract with a customer, work gets outsourced in form of work packages.

On the outsourced product development front we are well positioned as annuity business forms a significant chunk.

What is your attrition level? Comment on the Utilisation, including trainees?
Annualized attrition for the quarter was 8.2 percent and the utilization has been 85.5 percent, including trainees, in this quarter.

How much scope do you see for further cost cutting measures?
Driving cost efficiencies at the operational level has been an ongoing effort and will continue to be so. At an internal processes level, we have launched a WoW (War on Waste) campaign, where we are identifying areas of redundancies and inefficiencies within the organization to ensure there is no wastage. We encourage employees to identify areas of improvement and optimization, since they are best placed to drive this.

On the operations front, we have imbibed the philosophy of ‘First Time Right’. First time right means that you assess and anticipate customer needs, and deliver to the best of your abilities by delivering zero-iterations. That continues to be our philosophy and promise to our customers.

What is your message to shareholders?
Geometric began operations in 1984 as an R&D division of Godrej & Boyce, and was later spun off into an independent company in 1994. This legacy and DNA of Intellectual Property (IP) creation has stood us in good stead over the years, and helped us create niche IP-led service offerings. We use our in-house build proprietary technologies and IP to deliver value-added services to our customers in the global engineering space, saving considerable time and cost for them, in their product realization process.

Geometric has developed deep technology capabilities as a result of its extensive alliance partnerships with leading PLM and Engineering software vendors and a number of other software OEMs. It has a strong global engineering footprint across multiple industries such as Automotive, Industrial Engineering, Agricultural and Construction equipment.

We have a globally standardized set of offerings and competencies around our global engineering proposition, and a service delivery model that allows customers to tap into the same competency sets across our locations. Geometric is one of the few companies that can boast a truly global service delivery model of this magnitude in the global engineering outsourcing space.

Adding to this value proposition is the strong deployment and use of knowledge assets and tools developed in-house to improve productivity. One of the best examples of this is our product DFMPro, which helps designers with the manufacturability of their designs through a set of automatic checks and guidelines. This reduces the number of design iterations, and the need for the design and manufacturing team to work in close proximity.

We are able to help our global customers "design anywhere, manufacturer anywhere" through a global network of engineering centers (USA, France, Romania, China and India), standardized processes and innovative point-productivity solutions.

Over the years, Geometric has exhibited stability, profitability and growth. Our employee strength has doubled from 1500+ to 3000 employees in the past four years, whereas, revenues have risen by a 150% in the last four years, from USD 50 million to USD 129.47 million for the year ended March 2009. It is this stability and promise of growth that has resulted in our promoters’ and key shareholders’ continued faith in the company. As the market starts opening up, we believe that we are well poised to address the opportunities that will open up as a result