Wage hikes, BT revenues dragged margins: Tech Mahindra

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Wage hikes, BT revenues dragged margins: Tech Mahindra

Wage hikes and poor BT revenues lead to a disappointing 13% fall in profits to Rs 240 crore for Tech Mahindra, India’s 5th largest IT exporter.

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Excerpts from Reporter's Diary on CNBC-TV18 Watch the full show » ALSO READ See latest News about Tech Mahindra See previous management interviews See what other Experts & Brokerages are saying about Tech Mahindra Tech Mahindra BSE | NSE 31/05/12 Are Mutual Funds betting on Tech Mahindra? Other Stocks in this news Mahindra Satyam |

It was a muted quarter for Tech Mahindra , India's 5th largest IT exporter, with revenues up by 3.3% at Rs 1,333 crores. But wage hikes and poor BT revenues lead to a disappointing 13% fall in profits to Rs 240 crore.

"Lower EBITDA this quarter was largely because of salary increases as well as some headwinds at our largest customer," explained Sonjoy Anand, chief financial officer.

BT revenue for the current quarter came in at 37% of the total turnover.

Sujit Bakshi, president of corporate affairs says that they are looking to increase the number of deals with BT. BT currently holds about 30% stake in Tech Mahindra, making it the largest customer.

Vice chairman Vineet Nayyar also spoke about the merger of infamous Satyam , adding that there may be an update on that front possibly as soon as the next quarter. "The logic behind this acquisition was to increase focus on other sectors," he explained.

Going forward, Nayyar says that they are looking at expanding activities in the BPO side.

Below is an edited transcript of the management's interview with Malvika Jain. Also watch the accompanying video.

Nayyar: We have traditionally worked on the IT side, but now we are also trying to expand our activities in the BPO side, and basically that is where we expect future growth to come and that is where we are quite encouraged by the successes we have had in securing that business. Our revenue from BT Now is at 37% of our total revenue.

Q: What is the kind of BPO work in terms of volumes that you can expect from BT Now as per the conversations that you have had with BT currently?

Bakshi: I can only say what we have in hand, but we are working on a very large deal. We have had a very successful go-to-market with BT and their clients. And Peach has been taken as a partner and BT is doing client specific work on businesses which is largely in the end-to-end contract management from procurement, to tech design, to P&L management, reporting cost and invoicing.

So a large portion of BT Global Services is a part of BT, which is growing. A large portion of the company we believe is done through the engine that we have taken and we are seeing robust growth there. We have had very successful commercial work from BT's clients like Proctor and Gamble, etc. So we see a fair amount of growth in the BT side of business and network operated side of business of BT this financial year.

Q: You factored in certain profits this quarter on the overall bottom-line. Give us a sense of how PAT is fairing because it is marginally down again this quarter. What is your sense? What is the reason for that? Where is the pressure coming into PAT from?

Anand: Basically what you see in the movement on PAT sequentially is the flow down impact of the lower EBITDA this quarter, which is largely because of the fact that we had the salary increase this quarter as well as some headwinds at our largest customer.

Q: We talk about slowdown in the telecom sector. Since you have Mahindra Satyam on board, does the worry or concern that you would have over the telecom sector reduce in any ways? There is an eventual merger that is yet to happen and since the two companies are already in some areas functioning as one?

Nayyar: The rational for acquiring Satyam was basically to anew us from the risk of working only with one vertical. I think that decision is now justified considering the pressure you are seeing on this telecom vertical. So I think it was in retrospect a good decision and we are glad we took it.

Q: Post the merger, will there be any reduction in terms of your concentration on the telecom vertical?

Nayyar: Obviously because it will come down from the current 37% to about 18%. It's still large, but it is not as homogonous as it was earlier.