Which Indian company processed war claims for more than 7 lakh people from 82 countries after the first Gulf War way back in 1992. Difficult question? Take a guess anyway and here’s a clue: It’s the same Indian company processing the IT returns of 30,000 US residents this year. Well, the answer is the Mumbai-based Datamatics Technologies (DTL), also in the news recently for becoming the first Indian BPO player to go in for an IPO on the Indian bourses.

But what is so special about DTL’s merits as a BPO player? Surely, going for an IPO can’t be a novelty at the moment, what with many others BPO players having IPO plans lined up this year, including Daksh prior to the IBM deal.

However, Manish Modi, CEO, DTL, avers that one of the biggest differentiators is that DTL is one of the very few purely non-voice players in the Indian BPO pantheon, usually dominated by call centers. The company is primarily involved in three areas—content management, back office processing involving financial services and software services related to these areas. (See Table What’s on DTL’s Plate?) On the content management front, DTL is involved in electronic publishing for scientific, technical and medical (STM) journals—a domain very few companies in India like Techbooks, eBooks or OfficeTiger currently undertake.

"Though electronic publishing continues to remain our most lucrative domain, we have spread ourselves into areas like financial ledgers, accounting, taxation, healthcare claims processing as well as HR activities like resume processing, benefits administration and payroll," says Modi.

DTL is part of the Rs 350-crore Datamatics Group of companies, which includes Datamatics (DL), an IT services company, Datamatics Financial Software & Service, which is involved in registrar and transfer services and Datamatics Staffing Services engaged in recruitment activities. Not only is DTL the first company of the group to go for an IPO, even group chairman Dr Lalit Kanodia admits that it is the "blue-eyed boy" of the entire Datamatics family. And, this is not just because of its unique positioning in the Indian BPO clutter, but because of its significantly strong financials. DTL has shown steady growth in revenues in the last few years growing from Rs 41 core in 2001-02 to Rs 60 crore in 2002-03. For the nine-month period ending December 31, 2003, DTL has already clocked Rs 70.2 crore with net profits increasing from Rs 15.5 crore to Rs 21.4 crore in the same period. Dr S Subramanian of Enam Financial Consultants, which was the book running lead manager to DTL’s IPO, asserts the company is indeed in sound financial health."We brought Infosys to the market, and our association with DTL should imply our trust on its future."

M&A Growth
DTL has traditionally chosen the inorganic growth route through a spate of acquisitions. As part of this strategy, it acquired 5% stake in Saztec International in 1996 that enabled to make forays into the domains of HR and claims processing. Subsequently, DTL increased its stake to 40% in 2000 and finally to 100% in 2003.

More recently, DTL also acquired the $13-million CorPay Solutions that allowed it to significantly scale up its operations. CorPay came with 225 people involved in accounts payable in three locations of Detroit, Los Angeles and Kentucky. It also brought four Fortune 25 companies, including Chrysler, GE and Ford, into its client roster. In total, DTL’s client base of 52 (with 10 significant accounts) was beefed up by another 30 from CorPay (5 large accounts). Says Mahesh Zurale, COO, DTL, "This acquisition has helped us add significant financial accounting services to its offerings while simultaneously acquiring client relationships with large US corporates." Even industry peers admit the success of the CorPay acquisition. Says Atul Kunwar, country head-global managed services, eFunds, "This would allow DTL to cross sell its other services or even DL’s services to CorPay’s blue chip customers."

Not only acquisitions, even JVs have significantly strengthened up DTL’s bottomline. During 2003, it formed a JV with the $450-million Cadmus Communications, the world’s fifth largest periodical printer. The result: The formation of KnowledgeWorks Global (KGL) which provides a full range of content processing, content management, and related services to STM publishers. The JV has brought down Cadmus’s time-to-market cycle from T+5 to T+1. Says Modi, "A key component of KGL’s growth comes from servicing publishing houses in Europe, like the world’s largest publishing house Reed Elsevier. For servicing clients in Europe, Cadmus required a direct-to-India business model and this requires setting up their production facilities in India."

What's on DTL's Plate? Content Management z Legal z Scientific, Technical, Medical z Financi Revenue: Rs 28cr     Back Office Processing z Financial & Accounting   z Accounts Payable   z Litigation Support   z Write-up series Tax Processing z Personal tax return z Post filing services Revenue: Rs 14cr     Healthcare z Claims processing Revenue: Rs 4.2cr     HR Processing z Resume processing z App Tracking series Revenue: Rs 6cr     Related Software Services z Document management z Workflow solution z Data migration/consolidation Revenue: Rs 19cr

Today, DTL has two dedicated Cadmus offshore centers—400-strong in Mumbai and 100 in Chennai. With 70 of the world’s top 100 STM journals outsourcing their content development to Cadmus, no wonder it used to be DTL’s top client prior to the JV. But Zurale assures that post JV Cadmus’ share of DTL’s revenues reached 15% invoking the cap on single client contribution.

The company has partnerships and alliances with a number of strategically important vendors like FileNET Corp (document management and workflow solutions), Hummingbird, CSC (data migration services to insurance industry), Ascential Software (ETL tools) and CCH (tax processing). With DTL becoming the premier solution partner for FileNET and Hummingbird in India, it has developed a new revenue stream, which contributes nearly 25% of its revenues, in addition to its BPO activities. DTL was awarded the FileNET US-Service Provider of the year 2002 and the Hummingbird, Asia—Best Implementation Partner 2002-03.

Dr Kanodia also mentions that M&A would continue now with nearly 2/3rd of its proceeds from IPO earmarked for these activities. Ernst & Young is already scouting for possible acquisitions typically in the $10-15 million size. An estimated target of three acquisitions is slated for the current fiscal. Even IL&FS Investment Managers (IIML) invested $3 million into DTL recently—a fund that would be utilized for DTL’s overseas operations and acquisitions.

Whither IT Services?
While one might reserve all the kudos for DTL, it could be worthwhile to remember that the track record of DL—the other major Group company—has been nothing to write home about. Considering that it was founded way back in 1976, by Dr Kanodia, who also founded TCS, its revenues suggest that growth has not been like some of its peers. Even Kanodia admits that it has not been able to really live up to industry expectations, but assures that it is now about to hit the growth curve. Rahul Kanodia, CEO, DL, asserts that the one reason for this optimism is the company’s recent foray into high-end strategic consulting.

This is being done through the formation of a consulting firm called White Label in the US through a JV with the Mariner Group. White Label will function as a meta company, working with a consortium of member companies, of which Datamatics is the principal member with a 51% equity stake. This consortium offers clients an enhanced portfolio of premium, high value services.

In this JV, Datamatics apart from being the parent company, also acts as White Label’s Enterprise Delivery Centre. From providing a strong US front-end, and local comfort to customers; White Label provides managed outsourcing, acquires customer backend, giving clients the option of an IT infrastructure sell off.

Though industry analysts like Nasscom’s Rajiv Vaishnav lauds the White Label initiative, he feels that DL needs to improvise in the domain of standard IT services by venturing into new verticals, with new alliances.

Rahul informs that DL is already walking this path by forming joint-level consulting models with Algorithmx for risk management consulting, GL Trade for core banking implementation as well as IBM, EMC and Hitachi for SAN consultancy. It has also put special emphasis on embedded systems especially for the telecom vertical where it won a few major clients like Inmarsat last year. Within 12 months, he expects 10-15% of DL revenues to come from consulting, but more importantly it could lead to an organic growth rate nearing 60%. In the last 12 months, it added about 15 new customers.

Rahul’s optimism paints a rosy picture about DL’s future despite reservations from some industry analysts. But even if growth happens, DL will be a story of the future; DTL of the present. While DL is just a Tier 2 player in the IT services arena, DTL is definitely one of the top 5 in the Indian BPO domain (in the true sense). That could be the solace for the entire Datamatics Group for DL not having achieved its potential all these years. And, a sound derisking strategy, where in case of an eventuality DTL could just end up consuming the entire DL.

Rajneesh De in Mumbai

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