Zylog Systems Limited is an ISO 9001 certified and CMM Level 5 assessed, provider of Onshore, Offshore & Near shore technology services. Zylog offers a range of I.T. products and solutions to its global customers across multiple verticals like Banking, Insurance, Telecom, etc. Established in 1995, the company presents substantial cost savings and enhanced performance associated with a secure and effectively managed global development model. The company has a strong presence in U.S., U.K., Singapore, Malaysia and India, and more than 900 employees across the world.

Mr. Sudarshan Venkatraman, Chairman & CEO, Zylog Systems Limited, has over 17 years of business experience in Technology business. He heads the US Operations and mainly focuses on strategic planning, alliances & partnerships, and business development. Prior to establishing Zylog, he was associated with a Media Company which was developing program software for the television channels for a period of over two years (February 1994 - July 1996) as a Program Director. Before that he was a legal consultant. He holds a Bachelors Degree in Science, Bachelors in Law and Master's Degree in Management (Marketing) from Pace University, New York.

Replying to Anil Mascarenhas of India Infoline, Mr. Venkatraman says "Zylog has a major scope for increasing the offshore component."

The sentiment regarding IT firms is not very bright. How do you react to the same?

The sentiment is negative towards IT as of now because of 3 main reasons - US recession expectation, Rupee appreciation and Income Tax benefits not extended. While the rupee has been stable for the last 2-3 months the US economy slowdown is what is making the investors shy away from the IT sector. With all the major Tier I companies showing good results against this backdrop has been very encouraging and it all now depends on the 2008 guidance to be issued by these companies. Any positive move here is expected to bring back the investors’ confidence.

At Zylog Systems, we have a Global Delivery Model. The overseas operations are taken care of by the overseas branch offices setup across USA with the US head quarters located at New Jersey. Also subsidiaries have been set up in Singapore and United Kingdom to take care of the operations pertaining to the respective regions. This has greatly helped us to use a low-risk Global Delivery Model (GDM) to accelerate schedules with a high degree of time and cost predictability. Over the past decade, we have developed our onsite and offshore execution capabilities to deliver high quality and scalable services. In doing so, we have made substantial investments in our processes, infrastructure and systems, and have refined our Global Delivery Model to effectively integrate onsite and offshore technology services.

We have a Unique positioning as we have been able to survive and outweigh the competition because of our established credentials, proven track record and by uniquely positioning ourselves in the niche areas of technology.

We hear you are set to launch some major initiatives for allied Consumer Electronics enterprises. Tell us more about it.

These initiatives are under evaluation stage hence we can’t disclose more information on these unless things are finalized. We have technology management practices specializing in Mobile/Wireless Computing, Enterprise Reporting, Business Intelligence and Enterprise Application Integration.

Your view on the currency fluctuations. How are you hedged?

The Indian Rupee has appreciated by more than 10% since the beginning of the fiscal year 2007-08. Though the magnitude and the pace of the move took many by surprise, it should be noted that this occurred in a scenario where the US dollar was being sold off aggressively against other global currencies also. The move in some of the Asian Peer currencies has also been similar to rupee, and despite lower flows relative to investments in Indian equity market.

Our foreign currency exposures have not been hedged by any derivative instrument as the same is not required at present. While most of the IT Companies have been affected by the rupee appreciation we have largely remained unaffected as our revenues come mostly from Onsite and Offsite contracts.

What will be the accelerators for growth?

We see the following as critical accelerators for growth:

• Midsized Solutions based IT Services with Strong Domain Expertise in BFSI, Telecom, Pharma & Life sciences, Retail and Manufacturing
• Rs4bn (31^st March 2007) company with revenues growing at a CAGR of more than 50% over past five years
• Collaborative sales model used as an entry into Bigger Clients
• Good diversification across geographies, clients, verticals and service mix
• Strong people management practices
• Healthy onsite client base - offshore expansion driving growth & margins
• De-risked business model

The Company presently has 165 active clients with the top client contributing 3.9%. The top 5 clients contribute 16.3% of the revenue and the top 100 contribute 89.3% of the revenue. The repeat revenue is high at 92.4%.

Our goal is to build enduring relationships with both existing and new clients. With existing clients, we aim to expand the nature and scope of our engagements by increasing the size and number of projects and extending the breadth of our service offerings.

For new clients, we seek to provide value added solutions by leveraging our in-depth industry expertise and expanding the breadth of services offered to them beyond those in the initial engagement. We plan to increase our recurring business with clients by providing software re-engineering, maintenance, infrastructure management and business process management services, which are long-term in nature and require frequent client contact.

Your plans for inorganic growth?

We have a couple of acquisitions targeted for the year 2007-08. We intend to selectively pursue acquisitions that augment our existing skill sets, industry expertise, client base or geographical presence. We are constantly on the lookout for Targets that meet our acquisition strategies viz

• Deepening our Domain Competence
• Expanding or Filling out our Service Lines
• Obtaining Access to New Market / Verticals
• Enhancing Technology Footprints

We would look at acquiring IT service companies that provides industry specific technology solutions predominantly onsite based (who do not have much of offshore exposure) in US and European markets.

You were mentioning about the offshore delivery model. What kind of leverage do you expect from clients?  

88% of present revenue is derived from our top 100 clients. 92% of these clients have not leveraged the offshore delivery model. This gives Zylog a major scope for increasing the offshore component.

We would continue to follow the present proven three tier (onsite-offsite-offshore) delivery model, wherein the development happens out of the offshore and the project management up to the design phase happens out of onsite-offsite combination, to increase the offshore component in the near future.

Geographically, what plans do you have for expansion?

We plan to accomplish this by establishing new sales and marketing offices, representative offices and global development centers to expand our geographical reach. We intend to increase our presence in Asia Pacific through Zylog Systems Asia Pacific Limited, in the Europe directly through Zylog Systems UK Limited and in South & East Asia through Zylog Systems India Limited. We intend to use our operations in these regions to eventually support clients in the local market as well as our global clients.

We intend to continue investing in physical and technological infrastructure to support our growing worldwide development and sales operations and to increase our productivity. To enhance our ability to hire and successfully deploy increasingly greater numbers of technology professionals, we intend to continue investing in recruiting, training and maintaining a challenging and rewarding work environment.

Give us a geographical break up of revenues.

We are present globally today with operations in North America, Europe, Asia Pac apart from India. The US revenue is prominent and high at 98% with the other 2 regions contributing 1 % each. We expect the revenue from US to be around 95% in 2010 with the remaining coming from the other 2 regions

What is your alliance strategy?

Our alliance strategy is targeted at partnering with leading technology providers, which allows us to take advantage of emerging technologies in a mutually beneficial and cost-competitive manner.

We have secured orders from two large foreign banks for Cheque Truncation product, Front-End Cheque Truncation System (FeCTS). We would be customizing and implementing FeCTS to these banks and will be rolling out for the whole country. FeCTS consists of a data and image-capturing application that allows the banks to capture, process and transmit the cheque data and images, to the clearinghouse via a secured communication network.

How many Offshore Development Centers do you have? What is the head count?

Right now we are spread across 6 offshore development centres in Chennai totaling to approx 30,000 sq feet. The total offshore head count as on 31st Dec 2007 is 602.

You’ve made many acquisitions and alliances in the past. What are your views on inorganic growth?

In the past the company has been acquiring small boutique companies that have very unique offerings and integrate them with our operations. Till 31at March 2007 we had acquired 5 smaller Companies and all in United States. The revenue from these 5 companies along with the cross selling revenue contributed to 28% of the revenue for the year 2007.

Now the acquisition strategy is two-fold right now. We have a long-term strategy as well as short-term strategy. The long-term strategy is to look for bigger companies with more than 10 million revenue in the space that we operate and that has a complementary offerings or skill sets to enhance our visibility and reach ability in the same domain in the newer areas and/or companies that have the skill sets in the newer domain; there we can enhance our capability too. Understandably, it takes anywhere between 6 to 9 months from the identification of the company to complete the acquisition. So, we are in the process of identifying companies in this space, but at the same time as a short-term strategy because we have experience in acquiring smaller companies, we have been looking at small boutique companies that have very unique offering.

You earn a third of revenue through partnerships with Systems Integrators/ Solution Providers and Value Added Resellers (VARs). Going forward do you see this contributing significantly to your overall revenues?

Though in value terms the contribution through this medium will be on the rise but in percentage terms we expect this to be steady at around 30% for the next 2-3 years

Which are the main verticals you cater to? Any new verticals you plan to add?

Our major vertical focus has been in the areas of BFSI (33%), Telecom (24%), Retail (10%), Pharma/Healthcare (8%) & Manufacturing (8%). We foresee that the Pharma and Manufacturing to contribute more in the coming years due to newer initiatives in these verticals.

Tell us about your financials. What is the outlook?

For the year ending 31st March 2007 the revenue stood at Rs4.04bn with a net profit of Rs540mn. For the 9 months ended 31st December 2008 the top line was at Rs4.43bn with a bottom-line of Rs638.8mn. The Company has been in profit from inception and in the dividend list consecutively for the last 5 years. The growth in revenue has been consistent at over 50% since the last 5 years. The profit margin in the coming years is likely to go up further gradually with more offshore business component which carries higher profit margin.

Tell us about your new facility in Chennai.

We recently inaugurated our state-of-the-art facility at the IT corridor in Sholinganallur, Chennai. The new facility is spread over 1.1 acres of land and will be the Zylog’s biggest facility in India with 85,000 sq feet of built-in area. This is our second facility in Chennai, and complements an existing 30, 000 square feet facility in T. Nagar. The new facility hosts a total seating capacity of 850 employees and has seen an investment of more than Rs. 30 crore which excludes the cost of the land. The new facility is expected to yield revenue to the tune of Rs 135 crore during the next fiscal.

Brief us more about the IDEA Lab.

IDEA (Innovative Development of Enterprise Applications) Lab, is a high tech world class Software R&D Center launched at our new facility. The IDEA lab would provide value added R&D outsourcing services with 50 distinguished engineers to create competency excellence in various cutting edge technologies such as Web 2.0/3.0, Void/Unified Communications, Wig-MAX/Fixed Mobile Convergence, SOA and RFID.

Give us instances where your solutions have brought a major change in a particular business or for a particular client?

We did a Field Force Automation for one of the largest wholly owned global IP networks in the World. The client provides voice, data and Internet services on its state-of-the-art fiber-optic network to customers in more than 2,700 cities and 150 countries. The client carries IP, data and voice customer traffic on its global IP network, including traffic on more than 65 submarine cable networks worldwide. They are the only US-based providers to be a charter member of a new consortium building the Trans-Pacific Express (TPE) optical cable network system that, when completed in 2008, will link the US and mainland China.

The communication services giant was about to dramatically expand its service offering to consumers and small businesses by launching a nationwide campaign to become the only "national local" phone company - an offering dubbed ‘The Neighborhood TM’.

Challenge: Providing customer support, and in particular field service support, to this initiative was going to be a challenge - the existing computer system had been failing regularly, was highly inefficient and only supported eight states. The client needed nationwide support.

In addition, the effectiveness and job satisfaction of customer service representatives was hindered by the use of two separate computer systems - retyping all customer information from one system into another - for every customer call. Subcontractors performing field work were required to contact the client’s customers a second time to schedule appointments, often missing the customer and requiring additional calls for scheduling. Field service subcontractors also invoiced the client’s customers for completed work, resulting in very low collection rates. At a call volume of more than 5,000 calls per month, the client needed a solution and needed one fast.

The client turned to ZSL’s Field Force Automated solutions. DSL’s Field Force Automated solutions provided the client call center agents and managers with unprecedented functionality to manage field operations, reduce costs and significantly improve customer satisfaction.

Solution: To address the re-typing of customer information, ZSL’s Field Force Automated solutions enabled the auto population of customer data from the client’s mainframes, saving 60-90 seconds per call and eliminating data typing errors. Second call backs by the field service provider were eliminated by empowering call center representatives to schedule technicians during the first customer call - saving over 5,000 call backs per month by subcontractors and allowing a 220% decrease in the number of dispatchers needed.

ZSL’s Field Force Automated solutions automated voice and email reminder systems make a reminder call and sends an email to the client customer the night before their scheduled appointment - dramatically decreasing missed appointments from 25% to less than 1%. The client’s collection rates have doubled as a result of the technician’s ability to take payment at the point of service, including via credit card. Invoices are automatically generated within 24 hours of service completion by the ZSL’s Field Force Automated solutions for customers who wish to be billed. Technicians are automatically scheduled via the client call center and download their daily schedule via the Internet before hitting the road, enabling them to focus on their most important task - providing quality service.

Who are the major investors? At what price have they entered your company?

Your dividend policy?

The declaration and payment of dividends on our Equity Shares is recommended by the Board of Directors and approved by the shareholders, at their discretion, and will depend on a number of factors, including but not limited to the profits, capital requirements and overall financial condition. The amounts paid as dividend in the past are not necessarily indicative of our dividend policy or dividend amounts, if any, in the future