Geometric expects to go into top gear and become a billion dollar company in the near future

climbing up

T” A “Te didn’t move with \/\f time; we should have V V moved earlier,” says Manu Parpia, managing director & CEO, Geometric Ltd. Parpia is ‘chang­ing gears’ at Geometric, as he had mentioned in his letter to the share­holders last year. And, he’s is doing so, to fight against challenges and grow the company he co-founded with Jamshyd Godrej, now 66, in 1984, as a business unit of Godrej & Boyce, the metal and engineering arm of the Godrej group.

Amidst this, rumours are rife that Godrej group, which holds 31.23 per cent equity stake in the company, wants to exit. But, these rumours are not new. Similar reports had come in April 2013 as well, when it was said that investment banks had been appointed to find prospective suit­ors. But nothing really happened. This time, it is being reported that JM Financial has been appointed to find potential suitors to buy the 38.25 per cent stake held by the Godrej
group and the Parpia family. But, according to Parpia, now 64, these rumours have been floating around since 2006. And in a clarification, which was sought by the BSE from Geometric on the recent reports, the company confirmed that there are no events that have transpired to its knowledge that require them to make any announcement. But, it doesn’t mean that Geometric has not appointed JM Financial to look for a buyer. IT analysts feel that Geomet­ric has shown interest in letting the Godrej group and Parpia family exit.

Geometric was founded with the vision to create a great company spe­cialising in Geometry because Parpia and his team excelled in the field of Geometry. And that is how the name Geometric was given to the company in 1994, when it became an indepen­dent company. One of the objectives of Geometric was to give promising engineers access to wealth creation. When Geometric was formed as an independent company, Technology

Development and Investment Corpora­tion of India (TDICI), the ven­ture capital fund of ICICI bought a 28 per cent stake in the company. Three years later, in 1997, Draper Inter­national, a US-based venture capi­tal firm, bought a 4.5 per cent stake. And after Geometric went public in 2000, both the funds exited.

Until 2002, Geometric continued to focus solely on Geometry: which was about CAD/CAM products. But, it soon realised that Geometry was too narrow a market and it needed to diversify to grow. Which it did in 2002 by creating two new business units: product lifecycle management (PLM) and collaborative engineering.

Why diversify?

For more than three decades, cost and labour arbitrage were the pri­mary drivers as original equipment manufacturers (OEMs) leveraged engi­neering service providers (ESPs) for engineering support by using staff augmentation models. Staff augmen­tation is a strategy in outsourcing for evaluating the existing staff in a project and then determining which additional skills are required to meet


the business objectives.

Back then, project execution was limited to basic activities like scan­ning and digitising of engineer­ing drawings to engineering change order management. And product engineering was considered to be a core activity and IP-centric and there­fore off limits for outsourcing.

But, the perception that engineer­ing (the core of any manufacturing company) is not open to outsourc­ing was changing slowly, thereby increasing the addressable market for companies such as Geometric. And when manufacturing compa­nies were expanding capacity glob­ally post 2003; they needed ESPs to help them reduce their time to mar­ket. These engineering services com­panies help OEMs and accelerate their product development process, man­age operational expenditure, extend product lifecycles, develop plat­forms, enter new markets, and opti­mise R&D operations.

After diversification, Geomet­ric created a joint venture with Das­sault Systemes for its plm business in 2002. -The JV is called 3D PLM Soft­ware Solutions Ltd, in which 58 per cent equity is owned by Geometric. Dassault Systemes (3DS) is a French software company and a subsidiary of the Dassault group. 3DS special­ises in the production of 3D design software, 3D digital mock-up and PLM solutions. The name of the JV has been derived from the abbrevia­tion of the Dassault Systemes which is called ‘3DS’ and the PLM solutions which both the companies provide.

3D PLM is an Offshore Develop­ment Centre working exclusively for

(? crore) F – 2013-14
Net sales 1,095.45
Net sales (J million) 181.39
PBIDT 139.94
PAT 63.11
Cash flow from ops 131.08
Return on equity (%) 21.11
EPS(T) 7.29
Dividend per share (?) 2.00
Dividend pay out ratio (%) 27.45

 

Region-wise revenue

| India APAC Europe | USA (%)

6.55^^>6.57 ■                 6.96

 

Dassault group of companies. It works as an extension of the R&D of Das­sault Systemes with focus on build­ing expertise in DS products so that product development cycles can be reduced. 3d PLM works on prod­uct development, industrialisation, maintenance, documentation and market support for its software/ apps. These apps are used for designing cars and aeroplanes, among other things. DS claims one in every two cars and seven out of every 10 aeroplanes are designed using these apps. “There is steady growth in 3D PLM,” says Par- pia. “It makes revenue and profit at predictable levels.” 3d plm’s total rev­enues rose to ?277.07 crore in 2013-14 from ?192.09 crore a year ago. Its profit after tax last year was 144.81 crore – up from 133.53 crore a year earlier. 3D PLM employs 1,700 people across

Pune, Mumbai and Bengaluru. Sudar- shan Mogasale, CEO, 3d PLM, looks after the operations of the JV too, while Parpia is chairman, 3D plm.

As 3D PLM continued to grow and Geometric was declining, over the years, Geometric’s business units made way for industry-focussed offerings. It began offering a range of engineer­ing services across the product devel­opment process. It includes product design and engineering, manufactur­ing engineering, end-to-end solutions for PLM and software product devel­opment. These services are provided to manufacturers in industries rang­ing from automotive, off-highway, aerospace and defence, machine tools, consumer goods and oil and gas.

Geometric’s business is divided to five verticals – automotive, indus­trial, aerospace, E&s and intellectual property. Among these, it has the strongest presence in automotive & aerospace verticals, where it works with a few of the Global Fortune Top JO automotive OEMs. These two ver­ticals contribute up to 70 per cent of its total revenues. And its custom­ers in these verticals include Daim- lerChrysler Corporation, Honda R&D Co, PSA Peugeot Citroen and Aerolia, a part of the Airbus group. “Automo­tive sector leads in the engineering services as every year they launch either new models or features,” says Srenath Punnakal, assistant man­ager, marketing, Pricol Technologies, an engineering services company and a subsidiary of BSE-listed Pricol Ltd. Apart from Pricol, Geometric’s competitors are TCS, HCL, Tech Mahi- ndra and Cyient, among others.

A large part of the Geometric’s business remains execution of soft­ware services and engineering ser­vices projects. About 90 per cent of its revenues come from projects. Also, in projects, 65-75 per cent of con­tracts get renewed every year. “Most of the time when you engage with the customer, you get that (remain­ing) 25 per cent as well,” says Parpia. About 6 per cent of its revenues come from technologies/intellectual prop­erty it sells. Geometric’s technologies are normally licensed for a one-time royalty free licence and an annual fee covering support, updates and maintenance. Some 85 per cent of its technologies’ contracts get renewed every year. Geometric has recently diversified into embedded systems and it contributes to the remaining 4 per cent revenues.

Things were going good at Geo­metric until 2006. The diversifica­tion it made in 2002 was successful. But, as a part of the succession plan­ning process, Parpia resigned as MD & CEO, Geometric in 2006, leading to a series of leadership changes at the company. However, he continues to serve as vice-chairman and execu­tive director, while Jamshyd Godrej was and continues to be chairman. After an extensive search, Parpia was replaced by Ravi Gopinath as MD 8r CEO in September 2006.

But, the new leadership didn’t continue to the helm for long. In less than three years, when Gopinath resigned to seek career opportuni­ties outside Geometric in February 2009, Ravishankar G the then CFO of Geometric, was appointed as replace­ment. However, in a little over two years, the board of Geometric had to bring back Parpia as MD & CEO, when Ravishankar resigned for personal reasons in April 2011.

Second coming

It seems it was the succession plan­ning process which had triggered the rumour in 2006 that Godrej is selling out. And constant leadership changes in the company continued to fuel the rumours until Parpia was brought back. But, after Parpia was back, it was the challenges faced by the company and its impact on the performance that perhaps kept the rumour alive.

When Parpia was made MD & CEO for a second stint in 2011 (the first one had lasted more than a decade from 1994-2006), Geometric was fac­ing many challenges. “When I was asked to take over in 2011, Geomet­ric was going through a traumatised time and I was faced with a choice: whether to disrupt things or swim with the flow,” says Parpia. The trauma, according to Parpia, was the uncertainty that was created in the minds of employees due to two CEOs changing job in a short period of 4.5 years.

Parpia had to remove the uncer­tainty and fight against the chal­lenges. Among the challenges faced by Geometric was its approach which was based on ‘Tell us what to do and we will do it’. Also, it’s too-internally focussed organisational structure did not take into account the growing demand from customers for vendors, such as Geometric to support fhem globally and not just in one coun­try. As Parpia was fighting against chanllenges, Rakesh Jhunjhunwala, a major investor, sensed an opportu­nity in Geometric and bought into the company in the second half of 2012. He now holds 18.94 per cent equity stake in Geometric.

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