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Published on: Sept. 9, 2022, 8:21 p.m.
Cigniti's digital transformation
  • Cigniti wants to play a big role in its customers' digital journey

By Lancelot Joseph. Executive Editor, Business India

Year 2022 is going to be a pivotal year for the listed entity Cigniti Technologies Ltd (CTL) as it embarks on an exciting new journey. In August, the firm unveiled a new corporate avatar and brand identity to showcase its multi-dimensional capabilities in the digital arena. Cigniti is making a transition from being just a software testing firm to a full-scale quality assurance and digital engineering services company that leads digital transformation for its clients.

In the process, Cigniti aims to raise its revenues from nearly $170 million in FY22 to about $500 million in five years, and to $1 billion by 2030. In the last few months, Cigniti has made investments in amplifying its digital game – making key acquisitions to fill the white spaces in its digital transformation journey.

That is not only great news for its clients but great news for its investors too. On the BSE the share trades at Rs571 (7 September) from a 52-week low of R336, which accounts for a market cap of Rs1,581 crore.

This shifting of gears into a digital-first company comes at the right time. Digital is increasingly becoming the buzzword. Scores of companies worldwide have accelerated software spending in a bid to transform from legacy companies to increasingly nimble and online-based ones that use the latest technologies such as artificial intelligence (AI) and machine learning (ML).

Companies are also increasingly deep diving into metaverse providing virtual-reality experiences and making other such modern-day upgrades in their software codes and business models. Cigniti wants to play a big role in their digital journey.

“We are making the transition to a quality first digital engineering services company because we have always been known for assuring software quality. If a digital transformation has to be successful, it has to start with software quality, which cannot be taken for granted. We have created a plan and identified areas of growth that we are targeting. That is why we are re-inventing ourselves, and we have expanded our horizons into digital engineering services with more capabilities to help our clients achieve market leadership in the digital world,” says CV Subramanyam, CMD at CTL.

Speaking about the recent rebranding exercise, Sairam Vedam, CMO at Cigniti says: “The rebranded identity is a thoughtful expression of our constant commitment to innovation, excellence, and growth. Cigniti is making a significant shift from being a company that exclusively provided pure-play software testing and quality engineering services to becoming a full-cycle provider of digital assurance and digital engineering services. While maintaining its core value of being a Quality-First company, which will always be upheld in all areas of its operations. This new identity reflects our ambitions to tap into the fast growing $300 billion market segment of digital assurance and the digital engineering services market.”

Capability-led acquisition

To spruce up its product offering, Cigniti took the first step towards scouting for companies that could bolster its digital capabilities. In fact, many years after making its first acquisition, the firm recently acquired RoundSqr, which has vast experience in managing digital transformation. RoundSqr has significant expertise in AI and ML, data engineering and blockchain. Its RoundSqr Zastra is an active learning-AI-based data annotation platform that helps solve critical model validation challenges as machine learning models get implemented in production lines in enterprises.

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    We work with several large global companies. In the software testing industry, getting an entry is not easy. But we achieved that distinction in no time

    Srikanth Chakkilam, CEO, Cigniti

In fact, this will take Cigniti’s capability stack several steps forward. Over the years, Cigniti has tested software for glitches and this has often saved its clients millions of dollars in losses. The new capability in machine learning for operations will help it solve problems when implementing these types of software on the manufacturing shop floor, and so on. This will help Cigniti move past the last-mile AI operational challenges with ML operations.

Such capabilities will augment its revenues in the coming years. Cigniti aims to take this product offering to its already readymade channel of accounts which is available, and thus offer an interesting value-added proposition to its existing clients. On its own, RoundSqr clocked revenues of $2.8 million last year and is slated to more than double this to $5.7 million next year.

But the larger benefit will come from the up-selling to Cigniti’s existing clients, and acquiring new ones for digital transformation. “This is capability-led acquisition which will increase our ability to do digital engineering because the leadership team of the acquired company and the 100 people they bring gives us a significant momentum to go to our existing accounts and start offering digital engineering services. Hopefully, we will see a lot of our existing customers increasing their wallet share with us,” says Subramanyam.

Over the next 12-18 months, Cigniti can potentially expand this vertical’s revenues by more than $20 million while penetrating its existing pipeline of customers. The firm has already identified potential areas of deployment, and some of that effort is likely to bear fruit starting from the third quarter of FY23.

Strong start

Back in 2009, Cigniti made rapid strides, deriving gains from an acquisition. At that time, the company was a tiny player in software testing with revenues of just $1 million, originally known as Chakkilam Infotech, but made a major acquisition several times larger than itself. Chakkilam acquired Cigniti Inc, a $20 million US software testing services and consulting company. It then reverse-merged Cigniti, US, to itself and was rechristened Cigniti Technologies. 

Later in 2013, the company made another acquisition, Gallop Solutions Inc, a US-based specialised software testing services company with revenues of around $9 million. This not only helped the company gain expertise in new domains, it also helped it take on larger projects from Fortune 500 companies.

The acquisitions paid off handsomely turning Cigniti into a formidable global powerhouse in software testing with $167 million in revenues lately. “Our mission was to build credibility and we needed a presence in the US, which is a market that has tremendous potential and with experimentation in its roots. We grew from a $1 million to a $25 million company overnight. After that, the momentum we had from $25 million to $100 million was organic and huge. We helped companies from airlines, healthcare, BFSI, retail, etc to accelerate their digital transformation. We work with several large global companies. In the software testing industry, getting an entry is not easy. But we achieved that distinction in no time,” says Srikanth Chakkilam, CEO, who spearheaded the company into the niche area of software quality assurance and quality engineering.

Even so, after having achieved $100 million in revenues, everyone in the company including Subramanyam and Srikanth contemplated the big question that challenges all teams: what next?

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    we are re-inventing ourselves, and we have expanded our horizons into digital engineering services with more capabilities to help our clients achieve market leadership in the digital world

    CV Subramanyam, CMD, Cigniti

The answer came loud and clear. “We contemplated a new milestone, and we said that we should dream of becoming a $1 billion company. But the question that people posed to us was: can you scale up to a billion dollars just through independent software testing as your strategy; will the same strategy work? We did a dipstick and figured out that if we continue the same way, we will probably get to $200 million. We are now becoming a digital transformation services company that offers digital assurance and digital engineering services as well to our clients,” says Srikanth.

Since then, the company has been implementing various strategies to accelerate its growth journey. “We had to educate some of our clients on what we are planning to do. But nevertheless, we started to repurpose our business model,” says Srikanth.

Just about that time in 2020, Covid-19 took the global economy like a storm. Cigniti’s business was disrupted during those years, and the firm’s immediate focus back then was to stabilise the ship rather than embark on repositioning. A large chunk of Cigniti’s revenues came from the travel and tourism sector and threatened to take a toll on its revenues.

However, much to the delight of the company, some of the efforts that it put into digital transformation in those years seemed to pay off. While Cigniti was expecting a de-growth in revenues in 2021, its revenues were largely stable. Growth was slow as some of its frontline verticals such as travel and hospitality did take a hit.

But Cigniti also made up for the loss by venturing into new verticals such as healthcare. The firm added new clients in this domain, including the world’s largest device manufacturing company. This set up the base for strong growth in FY22 with Cigniti showing a revenue jump of 32 per cent in FY22.

“Every crisis is an opportunity. In that year, from travel and hospitality, we strengthened our offerings in evolving verticals like medical devices & healthcare, retail and e-commerce. We also invested in processes and improving digital outcomes, and last year we saw the fruits of that strategy come through as we went from $123 million to $167 million in a single year. It was the year we also brought in new top-level people, creating a structure to enable us to scale up,” says Subramanyam.

New mission and vision

Last year, the firm went a step further, and set a new mission for itself: ‘Together we will build a better future through technology-led transformation.’ All this has led Cigniti to make investments in new growth areas. “We have deepened our domain expertise. Our digital assurance services include AI-led assurance, cloud migration assurance, internet of things assurance, DevOps, mobile, robotic process automation and customer experience (CX) assurance, omnichannel testing, blockchain, 5G assurance, and much more,” says Srikanth.

The firm has also partnered with several leading global software players. Cigniti has partnered with tool vendors and hyper-scalers to offer a full-scale technology portfolio that can help clients discover the value of innovation.

Besides, Cigniti has also introduced a platform which is a low-code, scriptless, AI-driven test automation platform. This platform has been instrumental in reducing execution time by 44 per cent for clients. Cigniti’s proprietary AI-led and next-generation digital assurance and quality engineering platform with prediction capabilities – BlueSwan – helps innovation and assures product and platform excellence.

Cigniti’s product offerings, solutions and cutting-edge labs are tailored to help clients achieve market leadership. Cigniti has also deployed several state-of-the-art practices to ensure continued good engineering practices.

Across the industry, digitisation is accelerating at a rapid pace, as large companies increasingly realise that digital is the way forward. A study by IDC highlights that by 2026, enterprises that successfully generate digital innovation will derive 25 per cent of revenue from the digital products, services or experiences. Further, IDC points out that 65 per cent of global GDP will be digitalised and global spending on digital transformation will reach a staggering $6.8 trillion globally by 2023.

This indicates that enterprises will continue to build new technologies and software rather than buy and implement them and that digital technology will continue to be the most popular amongst those catering to the hybrid model of work.

Furthermore, AI and ML-led data engineering services also offer explosive growth opportunities for digital engineers. The global artificial intelligence market size was valued at $93.5 billion in 2021 and is projected to expand at a compound annual growth rate (CAGR) of 38.1 per cent from 2022 to 2030. The AI and ML-led data engineering services market size is estimated to grow at a CAGR of 18 per cent during the forecast year from 2021 to 2027, which offers significant opportunities in the digital engineering space for companies like Cigniti.

 Smart force

Sure enough, Cigniti’s aim of increasing revenues several times over will also be driven by a conscious effort to strengthen its manpower. Cigniti, in fact, has for long been identifying key people in independent testing and got them on board to do quality testing for its clients in various verticals. Cigniti also added key managerial staff and proved that it could scale up and add multiple layers to its revenues. Over the years, the firm’s manpower increased from about 150 people in those days to nearly 4,000 at present.

Cigniti has also developed key systems for talent acquisition which include due diligence, developing a sourcing strategy, and mapping industry talent. “Cigniti focussed on teams and has brought exceptional team members from across different spheres. We place a lot of emphasis on team building, and we want to rank high among the place of work,” adds Srikanth.

Cigniti now has strong capabilities in several verticals including banking, financial services and insurance (BFSI) industry, airlines, healthcare and life sciences, retail and e-commerce, energy, independent software vendors, travel and hospitality, and others including mobile too. The firm now has over 60 Fortune 500 companies, 70 Global 2000 companies, and more than 200 active clients across 24 countries.

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    The rebranded identity is a thoughtful expression of our constant commitment to innovation, excellence, and growth

    Sairam Vedam, CMO, Cigniti

Financial consolidation 

Over the last four years till about FY21, the firm focussed on consolidating its business and implementing new strategies on the digital front. All this has laid the foundation for good growth in the coming years if its strategic growth initiatives go according to plan. “We have been consolidating between FY17 and 21, during which time we added new verticals and focussed on sustainable growth,” says Srikanth.

Lately, Cigniti also consolidated its numbers and strengthened its balance through a buyback. The company did a buyback worth about R37 crore in the last quarter, which saw it extinguish nearly 8 lakh shares. Some of its cash was also used in paying dividends to shareholders. Even so, despite the huge cash outflows, Cigniti remains a zero-debt company with considerable cash on the books for more acquisitions, if required.

“Further, its financial metrics are improving, with the first quarter numbers showing a remarkable improvement. The company’s revenue accelerated by 8.9 per cent to Rs377.97 crore in Q1FY23. The firm’s EBITDA increased by 36.6 per cent to Rs44.55 crore in Q1. We have moved up the value chain over the last six quarters, as the investments we have made, be they in terms of people, technology and management time to focus on strategy have started yielding results,” explains Krishnan Venkatachary, CFO at Cigniti.

Sure enough, the firm seems well set to deliver better results. While its performance reflects well in areas such as people, technology, and operating leverage, the digital part of the growth piece will also start to reflect in the numbers soon enough.

“We believe in giving back to society and contributing to a sustainable future. As part of Project Cignificance, we have been doing CSR initiatives since 2012 and are focussing on providing quality education to underprivileged children by adopting schools in rural areas which impacted 3,000+ students over the years. Our education program is designed to not only impact schoolchildren but also teachers by empowering them through several model-school program interventions. The Covid-19 pandemic has also made us consider healthcare and we have supported a couple of hospitals in renovating ICUs and providing medical equipment. Cigniti has also supported the government in fighting the pandemic,” adds Subramanyam.

Cigniti has set off on the road to maximise its potential as a company, and a few more acquisitions may put its target ambition of becoming a $1 billion company in revenue within its reach much sooner than expected. In this new avatar, everyone will be rooting for Cigniti, including employees, clients and shareholders.

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