CMS Targeting Rs 2,000Cr Revenues In The Next Three Years: Rajiv Kaul

CMS Targeting Rs 2,000Cr Revenues In The Next Three Years: Rajiv Kaul

By Madhav A Chanchani

  • 01 Mar 2012
CMS Targeting Rs 2,000Cr Revenues In The Next Three Years: Rajiv Kaul

Private equity major Blackstone Group partnered with former Microsoft India CEO Rajiv Kaul in late 2008 to buy a majority stake in the domestic business of CMS Computers. The outcome of the deal is , which now specialises in IT services like infrastructure management and training, runs a large cash management business, and also offers transaction printing and card solutions, among others.

Kaul, who worked with emerging markets private equity firm Actis for two years after leaving Microsoft, categorises the company’s business into two key areas – IT services & allied businesses and the cash management business. Although the verticals are fairly different, Kaul says that the customer sets are relatively common which include banks, insurance firms, telcos, public sector and manufacturing companies.

With the recent acquisition of Securitrans India Pvt Ltd (SIPL), CMS expects to double its revenues and reach Rs 2,000 crore in the next three years while its current staff strength has gone up to 30,000. Till date, CMS has focused on the domestic market alone, but it is also looking at overseas markets and offering remote infrastructure management solutions to the portfolio companies of Blackstone.  


In an exclusive interview to VCCircle, Kaul, the executive vice-chairman & CEO of CMS, speaks about the journey since the buyout, the company’s growth strategy and the acquisition of SIPL. Here are the excerpts.

You partnered with Blackstone to buy the company three years ago. How have you fared since?

Well, in the last 2-3 years, we have ramped up our business to earn close to Rs 1,000 crore in revenues (earlier it was Rs 550-600 crore) and also increased our staff strength from 17,000-18,000 to 30,000.


The first year was fairly tight as we were involved in acquisition, integration and culture change, and the markets also went down. In the second year, we started building and investing in our infrastructure. We built a network operating centre in Mumbai for our IT business and for our cash management company, we started increasing our reach and added 60-70 new locations including offices, hubs and vaults. Today, we have a fleet of around 3,000 vehicles operating across the country. We have also recruited senior people who run the backend and the front end of this business. I do think that the last 18 months happened to be an extremely crucial investment for us as we built our system and processes.

What are the growth prospects of your main business domains? What will be your future strategy?

IT and cash management businesses have different growth drivers. For instance, the cash management business has a fairly healthy macro now. However, it was not so strong when we bought the company. ATMs were fairly regulated, but we took a bet that growth would happen sooner than later. Thankfully, the ATM market got fairly deregulated two years ago and that spurred a lot of growth in the country. The industry is growing by around 25 per cent while our growth rate has almost doubled in the past two years, even without the (Securitrans) acquisition.


The IT business, on the other hand, faced strong headwinds in the first 12-18 months of the acquisition because of the downturn, which put a lot of pressure on an India services business where the margins were not so strong. But things have improved in the last 18 months. Indian IT services industry is growing at 12-15 per cent while we are growing even more, at 20-25 per cent, as we are a smaller company with less overhead.

I think the ATM market space still promises to be a good macro environment for the next 2-3 years. And the recent RBI draft guidelines may also spur growth. The ATM market in India has the potential to grow at 40 per cent and we already have a market share of 58-59 per cent. I do feel that our investment and our quality are much better than our four competitors put together.

So for us, it will be building our enterprise service offerings, especially higher-end services. As Indian companies evolve, they will be more willing to spend on higher-end applications, which will eventually lead to higher billing rates and margins. The toughest job in the IT services industry is customer acquisition. But we are not worried as we already cater to 400-450 corporate houses and we are also able to retain them. It’s now time to consider what more we can do for them to drive growth even further.


The growth forecast for the IT segment is around 15-20 per cent, but for a company like CMS, the essential opportunity in that market is quite large. Even if the market doesn’t grow much, we should be able to grow by 20-30 per cent.

Our overall goal in the next three years is to reach Rs 2,000 crore in revenues from the current Rs 1,000 crore. We want to be the most successful and large multi-disciplinary services company with the widest reach.

Why did you decide to go ahead with the Securitrans deal?


A lot of people ask why we did it in the first place. After all, we could have just dropped the price to gain more market share. But that’s not how consolidation works. When we did the CMS deal, we analysed the cash management business across the world. Usually, this space doesn’t have more than 2-5 players. But India is quite unique in this respect and we have come across 8-10 companies with four major players among those. It’s a very tough business unless you have built scale.

We are present across the market but when growth is at 30 per cent, it takes a lot of distraction to build 50 more offices with the right people running them. Therefore, we looked at Securitrans as a way to deepen and widen our reach in the country. The company had a strong presence in northern Indian market and it was a great advantage.

So that deal offered us a quick way to expand our reach in India. This also means we will have a larger base when we increase the number of ATMs under our management. We also knew that if we didn’t do it, other companies, even the MNCs, would opt for consolidation play to keep the ecosystem compelling.

If consolidation is the key, why do the companies operate independently?

When an acquisition like this takes place, the firm acquired is usually merged with the parent company. But we are keeping them separate – against the popular trend and conventional wisdom. Of course, when both companies will be growing at 25-40 per cent a year, we won’t hold on to this model and integrate the two. But right now we are not doing it as post-acquisition, people tend to focus more on internal things and consequently, clients take a hit. So one has to act like this in a downturn when things are not going well.

Moreover, managing people is another key concern. After all, this is a critical business and if anything goes wrong, it can cripple the local economy for a few days. A lot of customers are also worried about this. So operationally, both companies run independently but at the corporate level, we supervise both. Securitrans should finish this year with 30 per cent growth and both companies are now leveraging their learnings.

How was the acquisition funded?

Well, we brought in our large shareholders – Blackstone and the Grover family. Plus, a part of it was done through internal accruals. Both the shareholders bringing in additional capital for an acquisition over a span of two years after the buyout is, indeed, a very strong commitment.

Are you looking at other M&A opportunities?

In the cash transit business, I don’t see the need for it at least for the next two years. If we want to move around in the value chain, it would make sense, though. As for the IT services space, if there are niche companies in India which are providing high-end services but have not built scale yet, those would be very synergic. In such cases, we may go for MoU or acquisition.

Some your businesses are fairly independent or totally different from each other. How do they fit in?

When we acquired CMS, we moved out of one business which was kiosk manufacturing. To be precise, it was a manufacturing business within a services company. Right now, there is a fair amount of correlation between our IT training and services businesses as we hire 20-25 per cent of our workforce from there. The card & print business specifically targets the banks while cash management and IT services have a broader scope. However, we are happy with a diverse portfolio and our smallest business is worth Rs 50 crore.

CMS continues to focus on the domestic market. Do you have plans for overseas expansion?

We may consider that only in one area – remote infrastructure management. Local market opportunity is compelling and it takes up most of our bandwidth. But remote infrastructure management will be a big opportunity overseas, although not in India. We are building capability in India and have started working with clients here. If we can make it work in India where costs are comparatively low, it will give us a good platform for overseas markets. We will be ready for it by FY14.

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