Syntel’s target by 2010: $1 bn revenues, $5 bn market cap

Born to an accountant in Kenya, Bharat Desai, founder of Nasdaq-listed $270 million Syntel Inc, moved to India at age 11.

After arming himself with an engineering degree from Indian Institute of Technology, Bombay, Desai joined Tata Consultancy Services and moved to the US on an onsite project.

This was where he met Neerja Sethi, destined to become his wife. Along with her, he set up Systems International in 1980 with a $2,000 capital. It was a staffing organisation, which placed Indian engineers at the customer’s location.

They made their first million in 1983. By 1990, revenues stood at $10 million. Today, the business model of the company has been completely reversed with IT/BPO replacing the staffing business and the couple’s net worth is close to $2 billion and they are ranked 286th on The Forbes 400 list of richest Americans.

On his recent visit to India, Desai, who holds an MBA in finance from Stephen M  Ross School of Business, University of Michigan, recollected the early days and shared his growth vision of the company with DNA Money’s Rabin Ghosh.

Excerpts:

On early years
We began 27 years ago as a staffing company, with no clear differentiator. For the first 10 years, we serviced only local companies and grew in an supply-constrained environment.

By the early ‘90s, we began looking at talent outside and we were the early ones to place Chinese nationals. In ‘92, we set up our first IDC (India Development Centre) here.

Our office was in SEEPZ and for a 9.5 KBPS (kilo bytes per second) leased line, we paid half a million dollars (today, connectivity 100 times faster costs under $25 a month).

It was a big decision we took, risking our entire year’s profit on that single connection. It took us a few weeks to get the “handshake” (synchronization between the US and India end of the leased line) done.

A client, who had signed on just on our word, began worrying on if we can’t get the connectivity established, how can we ever finish the project.

Fortunately, we managed the “handshake” on the eve of his deadline. In order to fully sweat our investment, we connected 32 terminals to one 9.5KBPS line and ran shifts!
On transformation of Syntel’s business model

By ’95, our offshore business began taking off and although we were doing about $100 million of revenues, almost entirely came from staffing.

We realised that it wasn’t a business that had too many differentiators. Of our 1400 employees, 1,200 were US-based.

It was then we decided to have a strong offshore model and began to gradually kill the staffing business. Even in ‘97, when we got listed, we were a $120 million company, but with 90% of revenues coming from staffing.

The transformation was tough because onsite billing rates are several times offshore rates and even to keep our revenues constant, we had to work several times as hard.

By about 2003, we completed our transformation and exited the staffing business completely.

Today, of out 11,000 employees, only about 500 who are essentially corporate office staff, are US-domiciled. Rest are Indians.

We are probably the only Nasdaq-listed US-headquartered firm which has the COO, CFO, HR-head — all based out of India.

Future Vision

We have set for ourselves a 1-5-10 vision plan. It is $1 billion revenues and $5 billion market capitalisation by 2010.

In order to achieve this, we are verticalising the company and have business leaders running these business units as entrepreneurs. Promising growth verticals for the future are healthcare, auto, logistics and transportation.

We also have decided what kind of BPO services we will have. We made the call of not getting into voice-based business and have refused engagements even with our existing clients wanting us to do their voice-based operations.

Since 2003, when we entered the BPO space, it has grown to 18% of our revenues and our team is 3500 people strong.

Our growth will largely be organic and India is a key price to our vision.

We are investing substantially in people and infrastructure, and by the end of 2008, we will have capacity for 20,000 employees.

We are setting up campuses in Pune and Chennai with an investment of $65 million.

Though we may have near shore facilities (in other low-cost destinations like Eastern Europe and Latin America), the real growth will be driven out of India.

Also, growth will come from some newer geographies and newer services as we move up the offering chain.

Today, US accounts for just under 90% of our revenues, but that would change as we explore other markets like Europe and South Africa. We have also signed our first Indian customer recently.