Trend of telcos eyeing offshoring a big plus: Tech Mahindra

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Tech Mahindra reported its earnings for the quarter ended December 31, 2011. The I-T outsourcing firm reported a consolidated net profit of Rs 276 crore in the October-December quarter of FY12.

In an interview to CNBC-TV18, Tech Mahindra's Vineet Nayyar, vice chairman, managing director and CEO; Sonjoy Anand, the chief financial officer and Amitava Roy, the chief operating officer say that despite the challenging global environment, the company has managed to deliver a satisfactory third quarter. "A depreciating rupee helped us."

The management reports that its US market rose 2% even though business from Europe tumbled 6.7%. One of the reasons is that the decision making cycle was taking longer due to global concerns in the short-term.

It also expects its I-T spend to be flat or marginally down going ahead. The company sees I-T budgets getting cut going ahead as it is seeing higher demand for offshoring.

Tech Mahindra's largest customer UK telecom major BT Group Plc's revenues remained under pressure in this quarter which was down about 4%. But its non-BT business grew 12%.

The company's attrition level remains stable at 20%.

Below is an edited transcript. Watch the accompanying video for more.

Q: How confident are you that despite the crisis, Europe will not hurt the business too much?

Nayyar:  I do believe that Europe will look up next year especially for an industry like ours because they are seeking cost effective solutions. Other trends which we are seeing and which is very encouraging for us is that an increasing number of telco's are looking at outsourcing their operations.

Q: This time around margins have come in at 16%, up by 90 basis points. While currency has aided margins, some of the headwinds right now are the BT business falling down and Europe being under pressure. What are the areas that you are concerned about?

Anand: As we look forward, there is still concern about our largest customer till there is a conclusion to the various pieces of business they have put down on ITT. The level of volatility on currency will always be a concern because the swings are just huge. Of course, the large global issues are concerns in a short-term because the decision-making cycles have been extended.

Q: Are you worried about BT because BT has been falling since quite some time and that is something that you have expected and have cushioned at some point in time. Going forward for the next one-year, what is your outlook?

Roy: BT is going through a cost transformation phase and in fact the major investments that they made a few years back, that they are now restructuring where they are going through cost efficiency measures etc. So, overall there is concern from an exposure point of view that, they are doing that, but we continue to retain the share of wallet. We believe that once that stabilises after a couple of quarters, once we know the results of the ITTs, we should be well off in terms of the overall share of the wallet.

Q: There has been some concern over the licenses that were recently cancelled. How much exposure do you have from telco's whose licenses were cancelled?

Nayyar: Etisalat is the major one for which we were doing the entire operations. The license I believe has been cancelled. We do not know what the response is going to be, but I have two issues here, one is we are dealing with Etisalat which is a very large internationally renowned company with a substantial financial debt. So, our exposure to them is a very-very tiny fraction.

I am sure they will honour their exposure, though they may feel that they have been unjustly treated. Two we also have a backup of a bank guarantee, but I don't think we will ever need to invoke it as Etisalat will clear its own debts.

Q: Next quarter is the time when you will be finalising the details for the merger. Any delay expected? What is the update?

Nayyar: It's making progress as we had anticipated.

Q: What is the update on the tax issue?

Nayyar: Certain properties of Mahindra Satyam have been attached by the Income Tax Department and we are looking at legal remedies against that attachment.

Q: What would be the legal remedies that you could explore?

Nayyar: Legal remedies to go back to the court and say that Income Tax department had been stopped from taking any further action. They have taken this action and we want it reversed.

Q: By when would you probably act on it?

Nayyar: We will be acting on it very quickly.