BYJU PILLAI President & CEO Inflow Technologies
Byju Pillai, President & CEO, Inflow Technologies, spoke to Ramdas S about the company’s plans after it bought back the equity stake of the Westcon Group. He also discussed the future of value-added distribution
You recently bought back the equity investment of the Westcon Group. While other distributors are known to be trying to sell their stakes, you are investing back in your business.
In 2008 Westcon invested 50 percent in Inflow with a plan to buy us out completely over a period of seven years. Over the last few years they increased their share to 54 percent. This investment made us stronger and paved the way for bringing Westcon and Comstor into the country.
However, in the past few quarters, Datatec, which owns the Westcon Group, has seen some loss in market share in Europe and North America where they generate major revenue. This has forced them to rethink their plans for many emerging markets, including India. We, the main stakeholders, directors and senior employees of Inflow who owned the remaining 46 percent felt that it was a great idea to buy back the shares, and we feel we got a fair deal. We are totally committed to the Indian and South Asian market, and have larger plans. Westcon India is today a division called Inflow Solutions, and the Comstor business has moved in with Cisco signing Inflow as a distributor.
Many other distributors are known to be negotiating for buy-outs. What do you think is a fair valuation for an Indian distributor?
It will depend on many parameters such as the assets owned, the vendor relationships, and the growth potential of the businesses they are in. I believe a ball-park figure would be 25-30 percent of the annual turnover for a valueadded distributor (VAD) and maybe 15-20 percent for a traditional distributor. Other parameters such as the real numbers in the balance sheet, bad debts and the quality of the team would also impact the valuation.
With so many disruptive technologies the role of a distributor is often questioned.
I think distributors are an integral part of the supply chain and are irreplaceable for almost all IT vendors. While some of the business models such as e-commerce and cloud computing are redefining the way things operate in the IT industry, we don’t see them reducing our value or impacting us in any way.
Cloud computing is not really changing anything for either the systems integrator (SI) or distributor. Public cloud computing is still a few years away from mass adoption in India because the cost and benefit of public clouds does not fit in with our cost equations since we have abundant manpower resources at reasonable cost. If at all I believe cloud will strengthen the role of a distributor.
Many say that the model followed by VADs of being project-focused is not scalable.
Today, 95 percent of our business is driven through projects where almost 70 percent comes through vendor and partner references. We can scale these numbers because we have built strong practices and processes.
The biggest challenge is choosing the right projects. Many projects, especially in the government sector, have landed in payment delays for various reasons. We are learning on a daily basis and are improving our processes, due diligence criteria and services capabilities to address more prospects with less risks.
Is channel hygiene a big worry this year?
It’s definitely the biggest worry for all distributors. Over past few years some SIs have hit rough patches and some have even exited the market creating bad debts.
Over the past few months we have created an alliance among distributors called Distributor Forum which shares information, and distributors are working collectively to ensure we are all protected from such risks.
Many SIs who have burned their fingers by choosing the wrong deals have become smarter. We feel that in the next couple of years things will improve.
What are your future plans?
We are adding new practices and refocusing on growth areas within our existing businesses. For example, Web application firewalls is a niche market within security which will grow exponentially; there exists similar opportunities across storage management, networking, cloud, software and other areas.
We are launching a physical security and surveillance practice and are adding vendors. We are open to inorganic growth ideas, including acquiring smaller VADs. We are also open to strategic investments. We may launch a separate initiative to sell services through channels.
“We are adding new practices, and are open to inorganic growth ideas, strategic investments, and may launch a separate initiative to sell services through channels”