Our Relationship With Vendors Has Grown Significantly After Acquisition
CT: What has been the impact of partners’ protest against online predatory pricing on national distributors like Iris Computers
Krishen: Online in India is not going to stop, to attract new and increase the customers base, online portals indulge in fancy pricing. As we know, online is fairly new to the Indian market and traditional partners have to re-orient themselves by giving value addition. This is how partners can build their business. Presently, in India online is just 10% and worldwide it is nearly 20%, and this how it will remain 20% as compared to other existing channels like dealers, LFRs and others. In our view, bandh is going to hurt channel more than the anybody else. Online will become bigger in coming years.
As we are a part of the channel fraternity, we sympathize and are concerned with our channel partners demand. We understand their business issues, but stopping purchase is not the answer. Previously, we had a discussion between brand owners, channel associations and national distributors, where we had decided to monitor the online people that they should not give inferiors products. The original warranty from the manufacturer should had to be taken care of. We are concerned from that angle as we don’t want wrong products to be sold at cheaper prices. Various ideas came up, like should we have separate SKUs for online and offline.
Today 90% of the channel is complaining, but there are 10% of elements who are supplying to the online directly. Our stand on the current situation is very clear and simple, we do not support the bandh, but we will support the cause of de-stabilizing pricing. We want stability in the pricing as the predatory pricing does not help anyone. Having said so, you can’t block online. Even the LFRs marketshare is less than 20%. In the current scheme of things, we believe, the role of traditional retailers will continue to be needed, as customers need retailers who will interact with the customers and its hand holding for service support.
For Iris, despite the lull in the consumer channel, our major pie of commercial channel continues to grow as this part of this channel is not seeing any direct competition from the etailers. Our 70% of the business is commercial and 30% is consumer.
CT: What has been the major developments at Iris, after the Inflexion point acquired its majority of the stake in two decades old Iris Computers?
Krishen: Ever since John Sculley’s Inflexion point acquired 90% of controlling stake, our distribution business has been witnessing steady growth in last one year and is aiming to become the top three national distributor by 2016.
We have benefited from the international relationships, financial resources and management capabilities available at Inflexion point. With the strong financial backup, we are all set to give tough fight to big names like Ingram Micro and Redington. We have set a target of becoming a Rs. 6000 Crore company in the next three years.
CT: Has there been a drastic shift in vendors relationship?
Krishen: Post the Inflexion point investment, it has been very good times for Iris from two angles. In distribution scenario, if you have to grow, you need credit limits. We have experienced that in Iris, we had credit limits from banks of the value of Rs. 100 crore. But with the Rs. 100 Crore limit, typically you can rotate that money for 8-9 times, and can achieve Rs. 800 crore turnover.
At Iris we managed to stretch it up to Rs. 1600 crore, but to grow beyond this point, we needed extra credit limits. With Inflection point investment, it worked like magic. With John Sculley’s name behind it, things start moving. Banks that were earlier giving us Rs. 80-90 croes limit, have gone up to Rs 160 crores. With funding flowing in, we can now look at adding more products and new areas to expand into.
Along with this, OEMs have stretched their credit limit for Iris Computers, which has also helped the company. The partnership with OEMs have been strengthened over a period of time, even vendors have raised Iris credit limits significantly. IBM has increased it from $1 million to $4 million for our Singapore operation, similarly, Lenovo India has doubled its credit limit.
It has been much nicer in terms of growing the company. Credit limit becomes vital, when you get big orders. Now, we got the limits, we are picking up large sized deals, worth Rs. 15-20 crore and have been growing 40% year on year.
Looking at the current performance, Iris has become a Rs. 1600 crore company, and is expected to become Rs 2500 Crore by March 2015. The distributor says it is looking beyond revenues and is focusing on profitability.
CT: Along with having deep pockets, what are the new areas in which Iris wants to invest and grow?
Krishen: One of the biggest plans of this year, is to actively participate in Modernize India and invest in infrastructure-led projects by supporting its solution providers and partners financially. We want to focus on such products, which are a part of Modernize India. We are getting infrastructure related orders from OEMs and partners, where we will be supplying CCTV, solutions related to smart cities and surveillance. We recently completed Rs. 12 crore Surat Police project, and will now be doing it for Delhi police and many other parts of India.
Iris will be working as a funding company for such projects. It will help those partners who have been getting large projects, but do not have adequate finance to execute these projects. Iris has formed a separate arm under the brand of ‘Iris Global service’ company. Until now, the new company has not done any funding deals, but it has plans to become a Rs. 500 crore company in the first year of operation.
The other area, Iris is evaluating, is getting into non IT business, which includes building roads. It will be importing raw materials like petroleum and aluminum alloys. The rationale behind this is that Iris wants to leverage its existing strengths of importing, logistics and funding. Iris is encouraging smaller partners to invest in infrastructure projects and bag the deals. We will not be working as venture capitalist as we are not buying the company’s shares. As a business model, we will be acting as a funding facilitator, where we will buy products on partners behalf and execute the projects.
CT: Iris has been a major distributor for IBM servers and Lenovo laptop in north India, now with Lenovo acquiring IBM server and Motorolo Mobility business. How is this going to strengthen Lenovo’s partnership?
Krishen: Post the IBM-Lenovo’s server deal, we have started billing for Intel based servers under Lenovo’s account. The transition has been fairly smooth. Lenovo will now be billing the server range under the Lenovo’s System X. Lenovo has taken over the complete IBM’s system X business including its manufacturing, people, building, R&D, test centers as well their partners. Lenovo will continue to work with IBM’s existing set of partners and at the same time it will create synergy for both Lenovo and IBM partners. Traditionally, Lenovo is having more channel friendly policies than an IBM. The new change will cretainly make both the channels happy.
Currently, Lenovo is talking to its traditional IT partners for its Motorola phones. But soon, Lenovo will get into offline space for Motorola phones.
During IBM days, we used to distribute 300 servers a month, and we will maintain the same numbers with Lenovo coming in. As per the agreement, IBM is going to provide service for next five years. Server business is still not very big, if a customers buy 40 laptops, he buys only one server. Currently, IBM server business was less than of 10% for Iris business. The requirement of servers is much less than PCs. We do not see the server business will grow more, as more and more people are going to cloud automatically the growth of server becomes less.