Cigniti CEO in Conversation with Economic Times on FY2022 and Roadmap for Growth

Smallcap IT company Cigniti Technologies, which has a market capitalization of around Rs 1,100 crore, has laid out a roadmap to become a $500-million (Rs 3,800-crore) company by 2026. Srikanth Chakkilam, CEO & Non- Executive Director, Cigniti Technologies, says the plan includes growing both organically and inorganically. “Considering the blueprint and current scenario, though we do not give guidance, we are confident of growing organically at high teens,” he says in an interview with ETMarkets.com. Edited excerpts:

Cigniti mainly drives revenue from 7-8 sectors. Which segment is working the best for you?
While Cigniti is sector agnostic, 75% of our revenues come from five key sectors – BFSI (19.6%), Travel, Transport, Hospitality Entertainment (16.2%), Retail and Ecommerce (14.9%), HCLS (13.4%), and ISV (11.5%). These industries are supporting Cigniti’s revenue growth and will continue to do so in the coming years, as seen by the demonstrable expansion of digital transformation in the market landscape in these sectors.

What was your attrition rate during the last 12 months? What is the revenue per employee?
Attrition percentage at the close of FY22 was at 30.31%. The revenue per employee in US dollar terms is $45,378.

The IT industry is seeing high attrition. Should one look at it positively that there is no dearth of jobs in the industry (which is a sign of growth) or negatively that companies have been unable to retain their talent?
Yes, attrition is at an all-time high in the IT industry. Organisations throughout the world have been experimenting to close the gap, which has resulted in a lot more overhead across work levels and a lack of ability to genuinely interact with their environment. Interpreting attrition in recent times is slightly more complicated than usual. The current job market has become highly volatile and costing businesses yet is lucrative for the candidates.

While employee turnover is an expected phenomenon in any organization, today we are battling how to manage prospective candidates to honor the offer and stay warm until their onboarding. The high attrition has not only increased the cost of hiring and training new employees, but has also led to incurring direct and indirect costs that include the costs of advertising available positions, performing background checks, paying out referral bonuses etc. Internal costs include management’s time spent reviewing resumes, making calls and conducting interviews, as well as the time spent by dedicated recruiting staff and the HR department.

In order to smooth out these challenges, companies are attempting a multifaceted approach that includes increasing fresh hiring to increase the supply pool, accelerating re-skilling programmes through online learning, deploying adjacent-talent skills for on-the-job learning, and providing employees with a holistic experience, among other things.

Our highest priority in the last year has been to retain top talent and incubate them through robust internal training and certification programmes, creating internal cross-functional opportunities and ensuring frequent communication and engagement initiatives to augment the stickiness and belongingness to the organisation. Our vision to diversify our services into adjacencies is a high priority task that will open more opportunities to attract new talent and invite fresh ideas and perspectives to enter the mix.

Being optimistic and finding new opportunities amidst the most difficult times is a lesson learnt during the pandemic. Putting this into practice, we have embraced the ongoing attrition rampage as a challenge and are continuing to explore ways to deal with it in the most positive way creating a better culture for the in-house talent and opening up opportunities to the new talent that is looking forward to coming onboard.

Your revenue saw a significant jump in Q4 YoY, but that was not reflected in the bottom-line. What were the reasons?
It is a universal phenomenon that aggressive growth derails profitability to a marginal extent.

In our case, we have been growing over 2017-20 at an average of about 8%, and stabilizing EBITDA at 15%. However, the pandemic gave us an opportunity to rethink and rebalance our portfolio to make it more balanced and de-risked. Coupled with this, we also commenced our journey of becoming a $500 million company by 2026 effective 2021. This necessitated investment in both building capabilities and sales and marketing infrastructure. Coupled with this, the labor market has been volatile, which needed investment on a continuous basis for retention and rehiring.

All these factors added up for reduction in margin which we expect to neutralize to a greater extent in the coming year.

What are the biggest challenges for the industry and for you in the short to mid-term? Is inflation and the rising dollar likely to hit your business?

The entire software industry is going through a talent crunch and Cigniti is not an exception. We have mitigated these risks through several strategic interventions such as focusing on boarding more freshers from colleges and training them. We are also investing on upskilling our talent pool through a well-defined L&D roadmap.

Cigniti’s 85% of revenues come from North America and the dollar variation is not a concern as we have a natural hedge by way of expenditure being spent at onsite. Inflation is a nominal worry and constant in any business and we shall deal with this appropriately.

What is the outlook for next one year? What kind of revenue growth are you expecting going ahead?

Cigniti is the world’s leading digital assurance and quality engineering services company. The digital assurance market in particular (as per various sources) is witnessing an explosive growth rate. And there is an increased demand from global companies for a specialist in digital assurance solutions.

The board recently approved the acquisition of Aparaa Digital (RoundSqr) a specialist in AI/ML, data and blockchain engineering services. This acquisition would strengthen Cigniti’s digital ambitions and help offer digital engineering services to its clients. We have a journey to be $500-million company by 2026 and this involves both organic and inorganic growth. Considering the blueprint and current scenario, though we do not give guidance, we are confident of growing organically at high teens.