On an IPO High

On an IPO High

Rajesh Ghonasgi, chief financial officer at Persistent Systems Ltd., is known for having a winning edge in raising capital and capital restructuring. He successfully spearheaded the company’s IPO process and considers that an outstanding moment in his career



With more than 22 years of work experience in every part of the finance function and sometimes outside of it, the professional journey of Rajesh Ghonasgi, the chief financial officer at Persistent Systems Ltd. (Persistent), has been a fulfilling one. In 2010, Ghonasgi won the ‘CFO100 Roll of Honour’ (an effort to recognise the top 100 senior finance professionals in India) from the CFO India magazine for his ‘winning edge’ in raising capital / capital restructuring. One of the outstanding moments for Ghonasgi and his colleagues at Persistent was the successful completion of the initial public offering (IPO) in the year 2010. “Persistent gave me a great opportunity to lead an IPO,” shares Ghonasgi.

Ghonasgi’s experience has been mainly in the finance function of prominent technology companies such as Wipro Technologies, Hexaware Technologies and Deutche Software. He was one of the youngest divisional financial officers (at the age of 30) in Wipro and was part of a team that turned Wipro’s systems engineering division around. In March 2008, Ghonasgi joined Persistent, an outsourced software product development (OPD) company founded by Dr. Anand Deshpande in 1990.

“The best decision we have taken at Persistent was to retain employees during the global crisis”

An interview with Rajesh Ghonasgi, chief financial officer at Persistent Systems Ltd.

As told to Poornima Kavlekar

How would you say you have contributed to the overall growth of Persistent?

The most important thing we did was to navigate the company’s business through the 2008 global crisis. We had to rationalise costs and do a lot of innovative things to help us tide through the crisis. Our biggest achievement was that we did not cut cost by laying off people. We are not a physical assets company; we are a people-driven company. And we realised that when the growth comes back, we would need our people. We involved our employees in deciding on what to do and with their help, we achieved high levels of cost rationalisation. We also helped our clients during the crisis period by giving them short term discounts. These were phased out as the economy returned to normalcy. During this period, we used some of our excess staff on our focused areas of expertise and built skills and intellectual property (IP) to help us sell better. Our people were used at that time to work on mobility, social networking, collaboration, business intelligence and analytics and cloud computing, which paid off when the markets revived.

Finance articulated the need to control cost, but when we got this solution, it was not a one man solution, but a group decision and one that helped us get ready for the future. Addressing the global crisis by using our talent base to address future needs and accordingly build technology helped us sell our IPO better.

You are a key member of the mergers and acquisitions (M &A) team at Persistent. What is expected from you in this role? And what have been your contributions so far?

There are two main areas of my work as a member of the M&A team. As a member, I work with the management team on defining the policy for acquisition; basically, I answer the question on why we are acquiring and the value that we intend to generate. The second part of my role is more focused on transactional activity by ensuring that due diligence is done, the right questions are asked and unless these questions are answered so as to add value to the business, we do not go ahead with the deal.

For the last couple of years, Persistent has proactively invested in new technology areas like cloud computing, mobility, business intelligence, and analytics and collaboration. What is your role in these strategic decisions from the macro perspective of Persistent? 

Tracking of new technology is a consistent activity. We believe it is an investment and not an expense. At Persistent, we dedicate approximately 5 per cent of our employee base to research and IP development, and working on new initiatives which may not directly lead to revenues right away.

Our role is in conceptualisation of this value and making sure that the fundamentals are clear. On an operational basis, I have to make sure the budget is right, enable and track budgets to be certain that we are in the right direction.

Can you also give us details about Persistent’s foreign exchange (forex) and risk management programme?

We built a flexible forex hedging programme. It is not open-ended and is process driven. One of the parts of the process was to define the way we would look at the future and we decided to look at a 12-month rolling period that defines the period over which we hedge.

We also look at the amount of net exposure that we have with the intent of defending our position and not to make profit out of it. The ratio of net exposure (to be kept open) – which is normally 30 per cent to 70 per cent – is a tactical decision that I take. The other job is to make the hedges happen. We have a process which enables the team to use a stop-loss process and hence if the rupee depreciates, we log in the upside without getting locked in the downside.

So, the treasury works as a cost centre with a philosophy to just defend the best rate possible and use stop-loss to make sure that, if the rupee depreciates, we have the capacity to increase the stop-loss level and participate in the depreciation. In effect, the treasury is an insurance operation.

What about challenges in your role?

Our challenge is to make sure that as we grow, we create efficiency in the system and drive the value that we have promised the markets.

Salary inflation is a large part of our business life. But the biggest challenge with growth is to continue addressing margin requirements. And to address this, Persistent is looking at (in addition to the normal levers like rate increases, better utilisation which will happen as we grow and improve the pyramid) creating a non-linear part of the business to be driven by IP. IP-based revenue will enable us to address margin mitigation effectively. This IP helps us create revenues which are not linked to the time spent on the job by the engineer, but linked to the value generated by the customer on his balance sheet. Last year, we had about 9 per cent of revenues come from IP revenues. This could lead to a huge multiplier in terms of return and has been a part of our policy for the last three to four years.

In your opinion, what is the right time for an early-stage startup to rope in a CFO?

I would say it has to be fairly early. One of the things that a CFO has to do is to set processes from the ground up. He has to understand the business model and customer requirements. So, having a CFO on board in the initial stages would be good for the organisation. But how early is a difficult question to answer as having a CFO might be expensive for a startup. At some point, focus is required in setting governance and reporting processes in place, and making sure that the finance function does not  remain an accounting function which tracks cash and bank balances, but a function that understands profitability potential, helps grow the business and ultimately, guides the business in that direction.

How has the role of a CFO changed in the last 10 years? In your opinion, what should be the primary mandate given to a CFO today?

The CFO, and finance, is beyond just compliance and reporting roles. Compliance and reporting are important activities, but we are business people driving a business. Finance has to help the business grow and in the right direction. We are all strategic advisors and we should be constantly looking at ways of making the business more efficient. Business leaders look to help in taking decisions: drive risk analysis and help fast decision-making at operating levels. Risk management and investor relations are important facets of the role.

CFOs today are business counsellors, performance stewards, cost controllers, decision support information providers and trusted advisors to business leaders. In addition, risk management and investor focus should always be at the top of a finance leader’s mind.

The prime mandate should be to drive business decisions to greater efficiency, but always with propriety in mind.

The IPO achievement

“For strategic reasons, we needed to be a listed company. We had employees owning substantial part of our stocks through ESOPs (employee share ownership plan) and also private equity investors had invested in the company. Our main aim was to make sure that the value we had created is visible to all the stake holders through an external mechanism,” says Ghonasgi.  In March 2010, Persistent raised capital from the public, where they issued 5.4 million shares. The company raised funds for building capacity and also to find a way to determine the value of the company for all its stake holders involved. Its requirement was to increase the people capacity (from a talent base of 4,600 employees, it has scaled to 6,620 employees as of June 2011) and sustain organic growth on a substantial scale. The company also needed funds for acquisition of assets and brand building, which is an ongoing activity. Acquisition of companies is an add-on since an IPO brings currency for acquisitions. “Organic growth is our focus, however, there could be value addition through well thought out acquisitions,” says Ghonasgi.

Ghonasgi was responsible for leading the IPO process at Persistent and has initiated best-in-class practices for the company while going public. “As a CFO and the leader of the IPO team, my focus was on defining the objective for raising money and to explain to the market what the company was about, the business we were in, the business model and how we were different from the information technology services companies that were the benchmark for the market,” he says. He also did other things that fall under the transactional processes, like compliance to the IPO process, dealing with SEBI (Securities and Exchange Board of India) and ensuring that the paper work was complete.

On acquisitions

On the acquisitions front, Persistent’s strategy has been that of acquiring assets within its area of focus, which are the four technology areas (cloud computing, enterprise mobility, business intelligence/analytics and enterprise collaboration) that will bring value through skills and thus, add to its portfolio. The company acquired the OPD business of Infospectrum India in February 2011 and the life sciences’ business of Agilent Technologies, France in May 2011. “The Agilent deal has a big business impact on us as we have acquired its specialised life sciences skills, technology and regulatory skills in one of the most advanced and demanding markets of the world,” says Ghonasgi. Besides this, the company signed a joint venture with Sprint Nextel Corporation in April 2011 to address the rising demand for connectivity and managed services by Indian enterprises. Persistent has signed a co-investment opportunity with Life Technologies, where it is developing instruments for personalised medicines and expects this to fit in perfectly with its intellectual property-driven revenue strategy.

“We look for deals within our areas of focus – different technologies from what we have, geographical spread (we are largely U.S. based, and entering Europe and Japan will be a great opportunity) that we would like to have and customer acquisition opportunities,” signs off Ghonasgi.

To-do list before going public

  • Define an objective for the IPO. It is important for your current shareholders and the market as there is dilution of equity and value perception created should be highly credible.
  • Explain how do you to plan to make use of the money.
  • Explain your business model and differentiate yourself.

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