Cautiously optimistic on FY16 growth; bullish on LCC: TechM

Reema: The recent signs that we are picking up from the investor community is that Q4 could be a softtish quarter for Tech Mahindra in fact your organic constant currency growth could be flat, maybe slightly negative, margins could be severely under pressure. Could you give us a sense how the January to March quarter has been for Tech Mahindra in terms of dollar revenue, constant currency revenue or perhaps even margins?

A: I am afraid you will have to wait till the results come out for me to tell you all this. I can talk about overall contours both on the enterprise side and on the telecom side but quarterly results as you know have certainty sanctity and which we can’t talk about.

Reema: Let me come then to the telecom space. That is a vertical which is important for you and it is done very well. On a trailing 12 month basis telecom’s growth was a whopping 24 percent but in the last two quarters at least the company is not closed any large deal in the telecom vertical. Would that then slowdown your growth from the telecom space in FY16 and then could it perhaps be in high single digits, the growth in telecom?

A: The nature of the business does not go as one smooth line or a curve. There are movements which are significant and they have become flattish and then they go up again. That is the nature of all businesses in fact that is what life is all about. We have taken some significant steps and after steps we take breathe and we start seeing how to optimise the steps we have taken.

For example, we secured one of the biggest independent company in networking. We think it has incredible potential. Will the results come overnight? No. Will the results be equivalent to our expectations? Possibly yes. Will it immediately start spewing money for the benefit of the company? No, certain investments will have to be made.

So, all I would say is look at business as it is namely you secure something, you work at it and you make it work. In fact if I was to say that has been the differentiator of Tech Mahindra in relation to all other companies – we buy assets which are undervalued and which are not as well managed and then we fine tune them, make them work. We have done that consistently to the benefit of the company, to the benefit of the shareholders and that is an objective we will continue with.

We don’t look at life on a quarterly basis so I would request you to also share our vision with you, to share our value with you and look at Tech Mahindra in the same fashion.

Sumaira: Gives us a sense of how the demand scenario is shaping up, what kind of deals are you seeing in the market maybe not just for Tech Mahindra but from your peers as well, what is the industry demand scenario looking like?

A: You are seeing in many ways a global turmoil occurring at this point of time. Euro has come down dramatically, US is emerging once again as a very powerful economy and in dollar terms the value of the dollar has gone up considerably. It has an incidental impact on Indian IT industry because we are used to measuring our revenues in terms of dollar.

However, in terms of constant currency we are seeing some amount of growth happening and that is the thing we should be looking at because the currencies are becoming very volatile. US I think will continue to drive growth, Europe is going to be a laggard and that decrease in its value of its currency in the short-term is going to cause problems but in the long-term it maybe good for them because it will allow greater trade to occur and if it does it could give a jumpstart to their stagnating economies.

Middle East you will see problems because oil prices as you know has fallen dramatically. So, net-net an uncertain world and we are fortunate to be working in that and we will work to the best of our capabilities to see how we can fine tune our strategy to meet myriads of changes which are occurring almost on a continuous basis.

Reema: Given the fact that we are living in an uncertain world as you pointed out and the strong deal pipeline in telecom is not converted into deals which clouds the near-term visibility, what is the outlook for the company in constant currency terms on an organic basis say perhaps in FY16? Would growth be in the NASSCOM’s guided range or do you think you could perhaps fall short or the run rate of the company has been so good you are likely to exceed the NASSCOM’s guidance?

A: I am cautiously optimistic. We have made some very good investments and I do believe that we will get a very decent return in the medium-term, definitely in the long-term. Short-term would require bit of adjustment, bit of fine tuning, a bit of improvement and bit of eking out more efficiency from the same apparatus. However, in time if you were to look at Tech Mahindra over a year or two years, I would say the prospects are very good. Whether it will be next quarter or two quarters later I will not talk about it.

Reema: In the near-term it could be a bit cloudy, the outlook?

A: If I had the prescience to see what the future was I would share it with you but I don’t. I am an ordinary human being.

Sumaira: In the January concall that you had had you had indicated that you could be looking at wage hikes which could impact your margins by about 200 basis points. Recently we have seen Infosys announce the wage hikes, could you give us a sense of what the average wage hike for your company could look like?

A: Our wage hikes have already occurred. Ours occurs on the January 1. It is done with, over; you will see its impact on the last quarter because the quarter in which the wage hike occurs always has an impact on it. However like every other IT company over the years, it will even out.

Reema: We always ask you about Tech Mahindra’s acquisition strategy. You always tell us that the company is open to it, keep considering as and when an attractive opportunity comes. Is there something which is on the pipeline perhaps in the next three to six months?

A: If you eat too much too fast you can get indigestion. We have acquired a few significant companies, now our focus is going to be to make them work for us and that is what we are focusing at, at the moment.

Reema: There are some reports about your company being one of them interested in something called Sierra-Cedar. Should we understand that Tech Mahindra would not be interested in any acquisition right now?

A: Did I say that, I only said where my focus is going to be. If any strategic acquisition is on the radar and if it comes to us we will look at it. However, my priority in the next 12 months is going to make the acquisitions we have done, make things work for us.