Best CEOs: Sandeep Kalra's unique strategy to make IT company Persistent Systems into a global giant

When Sandeep Kalra was elevated as CEO and Executive Director of Persistent Systems in October 2020, he knew that he was taking command of the IT services firm at a pivotal time. The challenge before him was to harness the momentum built by the Founder, Anand Deshpande, a renowned tech leader, while also reigniting growth at the firm. Kalra had joined Persistent in May 2019 as President of the technology services unit from HARMAN International, a Samsung company.

To his credit, Kalra took on the challenge with gusto—breathing new life into the three-decade-old company and propelling it to new heights. And he says his management mantra, of bringing people together and inspiring them to rally around a common goal, has helped him deliver the required results.

For instance, one of the key goals he had set (in Q3FY22) was to get to $1 billion in annual revenues in six to eight quarters. And, the company is now well positioned to reach that mark in the March quarter of FY23, in just five quarters. “Unless there is a common goal, we aren’t going to reach anywhere. Even as we redefined strategies and introduced various new initiatives, we also brought people together and asked ourselves, ‘How can we come together and deliver something that we can all be proud of? That’s where we put a rallying cry, reaching a $1-billion (revenue) mark,” says Kalra, the winner in the IT & ITeS category of the BT-PwC India’s Best CEOs ranking this year.

“When we declare our results in late April, we should have crossed the $1-billion mark comfortably. From a run-rate perspective, we crossed the billion-dollar mark last quarter (Q2FY23). That has been a good milestone and a very proud moment for us as a team,” he says proudly.

He says it is important to go down to the grassroots level and engage with the employee base to make the employee value proposition stronger. “It is about listening to your people,” he says. “Employees ask—when we were doing well and creating shareholder value, what is in it for us? How do we grow? That is the genesis of the 80 per cent employee stock ownership plan (Esop).”

Persistent, in October 2021, extended its Esops to cover about 80 per cent of its employees. “So it’s about making sure that on one side you’re driving the team hard and on the other side, you’re leading from the front, taking care of them in genuine ways. That, in my mind, is a very big differentiator. Nobody in our industry, even across multiple industries, has such a rich coverage of employees in the stock option plan,” says Kalra.

After taking charge, Kalra concentrated on refining Persistent’s strategy, filling the gaps in the team and establishing and measuring key performance indicators. He reinforced the company’s network of partners and rebranded it as a more digitally-focussed brand to attract top talent and better position itself in the market. Persistent also committed roughly $240 million to seven acquisitions over the past eight-nine quarters.

“We have focussed on tuck-in acquisitions that are more capability-led. We have narrowed down our bets around cloud, cybersecurity, data, and AI, and proactively went after the right-sized companies with the right capabilities. Our acquisitions have helped us mine a large customer base. Nine quarters ago, we had 17 big customers—with annual revenues of $5 million or more. Today, that number has increased to 34. These acquisitions are enabling us to offer additional services to the same customers,” he adds.

The third quarter of FY23 marked a record-breaking achievement for the company as evidenced by the exceptional total contract value of $440 million and an annual contract value of $326 million, surpassing all previous figures.

“Persistent’s earnings estimates have been going higher and their deal bookings continue to improve. They have verticalised their offerings and made many changes and investments in sales and marketing. They have been able to sell multiple service lines to customers and that is getting reflected in their $5 million-plus client count, which has pretty much doubled over the past couple of years. All of this is achieved by improving the margin trajectory over the past few years,” says Apurva Prasad, Institutional Research Analyst at HDFC Securities.

The brokerage firm, in its February report, said the company is well positioned to double its revenues over the next four years, with earnings expected to accelerate even faster (24 per cent EPS CAGR over FY23-25E) as margins expand. Persistent’s growth trajectory will be supported by strong order bookings and a steady ramp-up of large deals, improved client mining supported by partnerships, mitigated client concentration and European geopolitical risk (Europe accelerator in the medium term) and stability in top 2 clients, the report said.

The pandemic brought about both opportunities and challenges for the company, with remote work becoming the norm and business growing, but attrition rates also peaked. To maintain cost stability, the company, under Kalra, focussed on campus recruitment, hiring over 3,000 freshers and investing in learning and development initiatives. Fresh hires were then given six to nine months of rigorous training, including internships during their college years. As of December 2022, the company employs over 22,500 individuals, with 2,177 in the US, 377 in Europe, and 19,862 in India, while the rest are located across other parts of the world.

Kalra says the company is seeing bright spots in enterprise software as well as on the digital transformation side. “We aim to be a $2-billion company in the next four years. That in itself is a fairly good CAGR, which would be healthily ahead of what we believe the industry will do. Our commitment to ourselves and our stakeholders is that we’ll grow faster than the industry, we will do that by bringing our people together, celebrating success and failures alike,” he says.

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