Zensar Is Taking The ‘EEE’ Approach To Dealmaking Amid A Slowdown
Zensar Technologies is not going after bulk cost takeout deals sought by top-tier Indian IT firms, CEO Manish Tandon says.
Zensar Technologies Ltd. is taking a varied approach to dealmaking—focusing on "experience to engineering to engagement"—at a time when discretionary client spending has dried up in what is seen as a “transition year” for the $250-billion IT services industry.
The Pune-based technology solutions firm is not going after the bulk cost takeout deals sought by India’s top-tier IT firms, Chief Executive Officer Manish Tandon told BQ Prime, during a virtual interaction on Tuesday. Instead, the company is focusing on new service lines that are gaining traction, as well as AI Buddy—its generative AI offering on the Azure marketplace.
“The most significant thing that is resonating with our clients is this continuum of experience to engineering to engagement, which was previously the domain of large digital players.”
The shift in stance, so to speak, comes against the backdrop of delayed spending by clients that may last a full year, if not more, for the wider IT services industry. The deal pipeline is healthy but flowing into revenue with a lag. Dealmaking has moved to the efficiency side of things rather than staying discretionary.
Essentially, deal wins aren’t meaningfully converting into revenue.
“The market has been very tough. The lifecycle of dealmaking has become much longer—discretionary spending has come down, clients have become cost conscious,” Tandon said. “[But] tech spending isn’t going away—it may not be growing as during the pandemic period, but it’s definitely not declining.”
That outlook reflects in the company’s first-quarter performance and commentary.
Zensar’s total contract value, or amount accrued from new deal wins, fell 12% sequentially to $154 million in the April-June quarter, after a seasonal high in the fourth quarter (January-March) of the previous fiscal. The management is cautious about the near-term demand environment, citing challenges in verticals like hi-tech and consumer and pressure on discretionary spending, Motilal Oswal said in a July 21 research report.
But Zensar has a robust deal pipeline, aided by multiple new deal wins and renewals, which the management expects to start converting in the near-term.
“We are focused on execution in this market,” Tandon said. “Our focus has been to forget about macroeconomic issues and focus on the essentials—take care of clients, take care of employees—and if you do that well, they will take care of your shareholders.”
A bright spot for Zensar Technologies has been its new service lines, such as experience and advanced engineering. The RPG Group company is witnessing decent traction in the traditional banking and financial services vertical, due to new deal wins in the past few quarters and as enterprises look for low-cost vendors, according to Motilal Oswal.
Tandon said his company is in no way a low-cost vendor.
“We are not a cheap vendor. If you look at our Q1 margins, among our tier-II peers, it will be among the highest,” he said. “We are not going after bulk cost takeout deals because those have become commodities. Tier-I is going after them, it’s a balance sheet play, frankly, but this low-cost stuff has given us price cover on the higher-end deals not done by tier-I.”
“If the client wants to cut costs, those are the services we are going after, not the bulk…”
Tandon took the helm of Zensar Technologies in December last year, after a brief stint at CSS Corp. as CEO and two decades at Infosys Ltd. where he led a $2-billion healthcare vertical. At Zensar, while the strategy is in place, he is focused on fixing execution to maintain operational profitability in a narrow band in the mid-teens in the current fiscal.
“I don’t want to promise the moon and then fall back on earth with a thud,” he said. “Every year, I want us to move up one quartile—currently, we are at the bottom quartile of the Indian IT space. Next year, maybe, we can aim for the third, then the second, and eventually rise to the top.”