May 22, 2013 10:24 AM IST | Source: CNBC-TV18

Insatiable demand for data has driven earnings: Nayyar

Tech Mahindra has posted good Q4 numbers, with revenue for the fourth quarter up 6.5% to Rs 1,907 crore, and profit growth at 36.8%. The management says the need for telecom has grown and diversified and a number of devices are in the market, creating an insatiable demand for data.

Tech Mahindra on Tuesday came out with numbers which beat street expectations. Revenue for the fourth quarter was up 6.5% to Rs 1,907 crore. Profit growth at 36.8% was also better than what the street had expected. CNBC-TV18's Kritika Saxena discussed the fineprint of the earnings with the Tech Mahindra’s management team - Vineet Nayyar, executive vice chairman Tech Mahindra and chairman of Mahindra Satyam, CP Gurnani, MD, and Sonjoy Anand, chief financial officer. 

Below is the edited transcript of the interview on CNBC-TV18

Q: Tech Mahindra's numbers have beaten street expectations. Can you give us the reasons?

Nayyar: There has been an uptick in spending, even in discretionary spend in the US and you are seeing the markets livening up. The reason is fairly simple. The need for telecom has grown and diversified - just look at the number of devices which are coming into the market and thus creating an insatiable demand for data.

Coming to Europe, you have the same phenomenon going on there. The issue there was always the economy and the fact that culturally they were averse to outsourcing. They are realising that that’s making them non-competitive, and now I see perceptible lowering of barriers which were not tariff barriers per se, but basically psychological and they are now willing to farm out work to the other parts of the world.

Q: As far as business rationalisation is concerned, you spoke about the BPO business where there have been some projects that you have let go off, considering they weren’t profitable or lending to the bottom-line as such. Is it also a part of streamlining the operation for Tech Mahindra and Mahindra Satyam, rationalising operations and kind of taking it to the next level?

Gurnani: Let’s take two points to it. I use the words that it should create value for my client whatever business that we do and it should create value for us, number one. Number two is that it has to fit into our strategic growth and the client’s objectives also. Number three is that when we talk about optimisation or rationalisation of our business, you are right, many a times during the growth phase we tend to do many things.

It is like spring cleaning and that you would do at your house and as a organisation also we have to look at every few years what is the business that we should continue and what is the business that we should not continue and I do believe that the exercise that we have done in some of our businesses is essentially an exercise, which has been done with mutual consultation with our clients.

Q: While the performance has been good over the last three quarters this quarter you have seen some amount of impact because of the sterling and overall currency headwinds. What is your sense going ahead and your hedging strategy remains the same if I am correct, what is your sense in terms of the way or the levers you will be able to take on to mitigate the risk that you are seeing on margins going forward?

Anand: Let me talk about what are the headwinds and what are the tailwinds. The headwinds that we see in the business at the moment come from the operational cost increases that come with the wage cycle. There will be some challenges that come from transition costs on large deals. The tailwinds that we will have to try and mitigate the impact of these things are ongoing programme on productivity and optimisation.

We will continue to focus on matrix like head to tail ratio, etc to squeeze out benefits from them. As far as currency is concerned, it is one of those things where of course we hedge in order to mitigate volatility. However, in the end, if the rupee appreciates, we will take the impact from that and if it depreciates, we will benefit from it because that is the fundamental nature of our business.

My own view on the rupee at the moment is that structurally the problem remains whether it is the current account deficit - there has been some improvement in the fiscal deficit but then the Food Security Act, etc are going to add back to the fiscal deficit. So, things are looking as if the rupee could depreciate some more.

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