Zensar Tech goes shopping, buys Cynosure for USD 33 million

Zensar Technologies has acquired US based company, Cynosure for USD 33 million. Prashant Nair caught up with Harshvardhan Goenka, Chairman of Zensar Technologies and asked him about the newly acquired company and the market opportunity.

Zensar in the last couple of years has decided to focus three primary segments – insurance, high-tech and retail, he said.

50 percent of our total business is insurance and we have been looking at opportunities as to how we can grow our insurance practice. We have some marquee clients in the US, in South Africa and Europe, he added.

Cynosure was a great opportunity, it is one of the leading Guidewire platform companies based out of Chicago with the back office in Bangalore, said Goenka.

He believes there were a lot of benefits by acquiring Cynosure. It has around 150 people, it is primarily in the property and the casualty space. It is a business which is massive in terms of size, he further mentioned.

According to him, there was a huge opportunity with insurance companies now wanting to become digital.

Cynosure has a good track record of growing by over 50 percent a year. We are hoping that this kind of growth can continue in the future, he said.

Speaking of funding this acquisition, Goenka said that a large part of this acquisition will be funded through internal accruals and some part through debt.

Below is the verbatim transcript of the interview.

Q: Can you explain the rationale behind this?

A: Zensar in the last couple of years has decided to focus and there are three primary segments that we are focusing on, one is insurance, the other is high-tech and the third is retail. 15 percent of our total business is insurance and we have been looking at opportunities as to how we can grow our insurance practice. We have some marquee clients in the US, South Africa and Europe and our desire was how to get into the Guidewire platform.

Much of the implementation that has been happening in the insurance space has been on the guidewire platform. Cynosure was a great opportunity, it is one of the leading guidewire platformed companies based out of Chicago with a back office in Bangalore. We felt that there were a lot of benefits by acquiring Cynosure. It has around 150 people, it is primarily in the property and casualty space. A business which is massive in terms of size and growing.

We also felt that there was a huge opportunity with insurance companies now wanting to become digital. There is the potential for customers to ask for an omnichannel offering and we felt by this acquisition not only would there be synergies in terms of customers, we could introduce Cynosure to our customers and vise versa but also we could take our offerings to the cloud and digital platform and the track record of Cynosure has been pretty good. It has been growing by over 50 percent a year and we are hoping that this kind of growth can continue in the future.

Q: Would the acquisition be earnings accretive immediately?

A: Yes. It will be. The turnover of Cynosure is about USD 20 million plus and the total amount that we will be paying will be around USD 33 million plus the incentives based on future guidelines.

Q: This will be funded via internal accruals?

A: A large part will be through internal accruals but some part will be through debt. It was earlier owned by a four partners led by Sid Wadhwa who was the largest shareholder and they will continue working within the organisation, Zensar organization, Sid Wadhwa will take over as the head of the insurance practice itself.

Q: Let us move on to other group companies. Let me begin with Ceat which has been leader in that particular space. Could you talk to us a little bit about the efforts underway at Ceat to go after the passenger car tyre market? More than a couple of years back Ceat was known as a truck and heavy vehicle tyre manufacturer, you moved aggressively into the two-wheeler space and now you wanted to do as far as the passenger car space is concerned. Where are we there in that journey?

A: We made a very conscious journey difference where we said we will more and more move to the consumer segment and the problem in tyre business is it was very much dependent on commodity prices. So the actual profit play is if we can convert tyres from a commodity to a consumer play and that is what we have been attempting in the last couple of years.

The emphasis has been primarily on two-wheeler and passenger car tyres and we have increased significantly our market share in both these categories. We are putting in significant investments. We have put up a new plant in Nagpur to make two-wheeler tyres. We are now putting up a large tyre capacity in Chennai for passenger car radial tyres, we are expanding our capacity in Baroda. So there is nearly a Rs 4,000 crore expansion which is going on at full speed. That on the one hand.

Q: That will be completed over the next two years or so?

A: In the next one year to one and a half years. On the other hand, we are also putting up a capacity for off-the-highway tyres primarily farm tyres meant for the international market. Even the passenger car tyres that we are looking at – a large capacity will be for the most sophisticated European market.

Q: Ceat maybe the most valuable business in the group right now, in terms of growth rates over the next couple of years when you said that you are bullish about the market and Ceat being the player it is in the industry, any projections you can make for growth at the company not just this year but the next couple of years?

A: What we are aiming for is not to be the largest tyre company but to be the most profitable tyre company. So I think the entire emphasis is how to grow profitability and that will be our objective in the future.

Today, the most valuable company within the group is KEC International.

Q: So you bring me to my next question which is KEC. There is very much a B2B kind of business, right?

A: Yes, KEC is primarily EPC player. Our major play is in power transmission where we are global leaders and we have plans not only in India but countries like Mexico and Brazil, we are doing projects around the world, in some of the most difficult terrains in Afghanistan and in Congo and in Africa, we are a leading player in Latin America, we are the largest players, so transmission is one part of the business, the second part is railway infrastructure.

Q: How quickly is that coming along?

A: It is coming along very well because it is a new business for us, which we started a couple of years back and I am very happy to say that the government has been very proactive giving a lot of orders in railway electrification, we are today clearly the number one player and our order book is nearly Rs 4,950 crore. So the railway business augurs extremely well for the future.