M+E Connections

Business consulting and IT outsourcing company VirtusaPolaris expects that the revenue growth momentum it saw in the back half of last fiscal year will continue in the current fiscal year, according to CFO Ranjan Kalia.

“Our revenue outlook actually looks very strong across most of our verticals [and] across most of our geographies,” he said at the J.P. Morgan Global Technology, Media and Telecom Conference in Boston May 22. Its business divisions “all seem to be growing very healthily,” with “significant strength” coming from areas including communication and technology, he said.

One factor could be demand and spending seeming to be a bit better than a year ago, when there was still some economic-related uncertainty, he said.

The company’s digital initiatives — including mobile, social and cloud — are growing faster for the company, in the mid-teen range, than other areas of its business, he said. Digital accounts for about 33% of its business now, moderator Puneet Jain, a J.P. Morgan analyst, pointed out.

Margins from digital initiatives tend to be “a tad higher” overall than non-digital, Kalia said. But the initial period in which a “very large transformational” project is started, during which the work is being heavily done on-site, can be dilutive to margins, he said, adding that margin is dependent on where the digital transformation efforts are being done.

VirtusaPolaris continues to be hired by companies for its digital transformation programs despite competition from larger rivals, he said. There are probably only “a couple of players” – and VirtusaPolaris “definitely has a seat on that table” — that can “really do the end-to-end digital transformation for a large enterprise” company, he said. Such a company must have “deep knowledge of the enterprise IT architecture” and also have a “deep engineering heritage” in its “DNA,” like VirtusaPolaris does, he said, explaining that’s why it continues to win large digital transformation clients.

An IT services provider like VirtusaPolaris must also have a “deep understanding of your domain” and also a “deep understanding of [the] transformation of your business processes,” he said, adding: “If you have those two, you will continue to be successful in the new changes that are happening in the market. If you do not have those two things, I think growing above or at the market industry level will continue to be very difficult for you.”

The conference presentation came only a few days after the company reported revenue growth for its fourth quarter (ended March 31). Sales grew 4% from a year earlier, to $226 million. But profit slipped to $10.5 million from $12.3 million. It “delivered strong sequential revenue growth and operating margin accretion” in the fourth quarter, Kalia said at the time, in the company’s earnings news release. The company expects to “deliver above-industry revenue growth as well as continued margin accretion” for the fiscal year that started April 1, he said.

Virtusa, via its India subsidiary, acquired a majority stake in Polaris Consulting & Services early last year and, in April 2016, Virtusa bought an additional 26% of Polaris. In December, to comply with India rules regarding takeovers, Virtusa sold 3.71% of its shares of Polaris common stock via a public offering, with its ownership interest decreasing from 78.6% to 74.9%.