SUMMARY
Founded in 2006, Kaar Tech has flown under the radar and has plugged away at the digital transformation space with profit to show for it
The Chennai-headquartered company has focussed on SAP consulting for most of its lifetime, and only ventured into other horizontal areas in 2022
CEO Maran Nagarajan says a portion of the company's first external funding round will go towards acquiring companies primarily in the North American market
It’s not often that a company raises its first external round 17 years after inception, especially if it continues to rake in profits, but that’s exactly what Kaar Tech did last week, when it raised $30 Mn led by A91 Partners.
In an ocean of startups and in the burgeoning enterprisetech space, Kaar Tech has flown under the radar after being founded in 2006 and has plugged away at the digital transformation space in key geographies with a bootstrapped approach. All while building its products and tech platform from India.
The company’s first fundraise is something of a surprise in a year when total startup funding has plummeted by 72% (YoY), but in other ways it’s not really surprising given that investors are largely focussing on sustainable business models. With profits in the past several years, Kaar Tech certainly stands out among loss-making startups.
Cofounder and CEO Maran Nagarajan told Inc42 that the company has not done anything different in the past couple of years even as other tech companies have had to reassess lines of business and cut back on workforce or spending.
Kaar Tech was founded by Maran Nagarajan, Ratnakumar Nagarajan, Selvakumaran Manickam and Gaurdian George in 2006 and initially focussed largely on the SAP consulting opportunity and built its core around SAP S4/HANA, which is an enterprise resource planning software used by large manufacturers and enterprises to streamline operations.
“All of us founders spent more than a decade in Western countries in various tech and consulting roles — the US, the Netherlands, Singapore and the Middle East. So we had a good idea of what companies in these geographies needed. When we came back to India in 2006, we decided to focus on the SAP and SAP S4/HANA space, which was our strength.” – Kaar Tech CEO Maran Nagarajan
Kaar Tech’s Digital Transformation Suite
SAP consulting typically involves enabling companies to streamline processes and get a clear view on the utilisation of its resources across any operational activity. The typical customer profile for Kaar Tech are companies in the manufacturing space where the digital transformation wave has truly embedded itself.
Elaborating on the SAP-centric solutions, Maran said that for enterprises in any discrete manufacturing vertical leverage SAP S4/HANA is the core, covering everything from financials, human capital management, inventory management, manufacturing, distribution and logistics to supply chain management. Kaar Tech has built its domain expertise in these core areas over the past 16 years.
The Chennai-headquartered company has focussed largely on SAP for most of its lifetime, and only ventured into other areas in 2022, given the broader needs of its target base of enterprises. As digital transformation needs burgeoned, so did Kaar Tech’s suite of offerings for companies.
“We gradually shifted into other areas that can also be offered as a horizontal service. We now offer our platform for data engineering, cloud engineering, product engineering and business process management, which have been in place for just over a year now,” Maran added.
Besides the core areas, Kaar Tech offers edge tech solutions for HR and talent management, financial supply chain solutions, warehouse management, third party logistics and transportation management, vendor management, forecast planning, customer relationship management, marketing, customer data management and more.
“There is a third layer that is ‘beyond edge tech’. Here we are talking about AI or ML-based solutions, or blockchain or process automation through robotics. These are all point solutions depending on which component of the business has engaged us,” Maran said, adding that most of these pieces have been added gradually after Kaar Tech had established domain expertise in SAP.
The idea is that when large enterprises eye digital transformation, they tend to require holistic engagement and end-to-end solutions. The company typically targets enterprises with market caps of between $500 Mn to $5 Bn as this allows Kaar Tech to cast a wider net in terms of the customer base, but also allows the company to focus on more sectors.
Currently, the company is working on 90 active projects, with over 300 enterprise customers served since inception.
Maran added that each project can bring in between $1 Mn to $10 Mn in revenue depending on the degree of engagement by Kaar Tech’s team of consultants and engineers. In FY23, the company claims to have earned INR 350 Cr in revenue with a profit of INR 65 Cr, up from INR 41 Cr in FY22.
Inc42 has not seen the company’s FY23 financials to independently verify the claimed profit amount.
Eyeing Acquisitions In The US
Of course, the fundraise changes things from the point of view of growth and scale, and the expansion into new horizontal areas in large part prompted the decision to raise funds, after more than a decade of being bootstrapped.
As it entered the horizontal space, Kaar Tech realised the need to add more pieces to its tech platform. One way is to acquire companies that fit the puzzle, which is the primary objective of the first round raised by the company.
“We would like to do an acquisition to strengthen the areas we have recently entered. This is likely to be in the data engineering or business process management space. And we are also looking at the digital commerce space very closely where we are in advanced talks to acquire a company,” Maran told Inc42.
Maran added that the latter acquisition will be funded by the company’s generated profits, whereas A91’s funds will be used to acquire a data engineering or BPM company. He added that in the last two years, Kaar Tech has doubled its profits and that’s the objective for the next 24 months as well before a potential IPO.
Setting Targets For IPO Run
Kaar Tech’s primary competition is the likes of Yash Technologies, IBM, TCS, Wipro, Indus Novateur, NTT Data, Accenture, Deloitte, Capgemini, among other IT services giants. However, on a region-to-region basis, the company has a host of competitors that go beyond these names.
Maran claimed that Kaar Tech’s differentiation comes from the size of the companies that it targets for its digital transformation products and solutions. And this allows Kaar Tech to expand faster than some of its competitors and be more agile in its solutions.
As in the case of most B2B enterprise tech products, Kaar Tech earns most of its revenue outside India. CEO Maran has relocated to the US, for instance, to handle the projected business growth in the North American market, and cofounder George is primarily based in Europe to manage the EU business.
Maran believes that given the profile of clients in the Middle East — including the likes of petrochemical giant Aramco — there is a lot of organic customer acquisition happening in that region. However, the big focus will be on the US market, which is also one of the primary factors for the company’s push for inorganic growth through M&As in North America.
As far as India is concerned, the biggest challenge comes from the fact that Indian businesses do not yet have the maturity to implement large-scale digital transformation projects. “We have not had Indian customers after 2012 or 2013, because if you look at the service margins we expect, Indian businesses do not rise up to our benchmarks and the scarcity mindset is also a challenge when looking at revenue expectations from India.”
Essentially, the people-reliant consulting business does not suit Kaar Tech’s revenue expectations, where most of its employees have billable roles. “We assign people to certain projects and deploy people within large enterprises, so we want to operate with better margins, paying terms and milestones. So that’s why our scope was higher in the Middle East and will continue to be so in the US and Europe.”
The A91 investment is also likely to be the final external round that Kaar Tech raises before hitting the public markets by 2026, according to the CEO. The plan is to target the quarter between December 2025 and March 2026 with Indian and US listing both an equal possibility at the moment.
Kaar Tech is targeting a revenue base of INR 1,000 Cr by the time it lists, and plans to double its workforce by then to 5,000 employees in India and Southeast Asia.
Maran told us that the company fancies its chances for a potential Nasdaq listing, because it anticipates that 40%-50% of the revenue will come from the US by 2026 and most of its acquisitions in the US will also give it a bigger presence in the market.
Given the IPO ambitions, Kaar Tech’s first and potentially final external round, is meant to be a fuel-up before pressing down on the accelerator.
