Have technology, recall for payment bank: Tech Mahindra

Tech Mahindra has the technology and know-how of payment banks and is recognised enough in rural areas because of the Mahindra tractors. These two factors will help implementation of its payment bank system, says Vineet Nayyar Executive Vice Chairman of the company. He tells CNBC-TV18 that his company will not be looking to tie-up with other players. “Since we have the technology, why would we want to go with any other company in the telecom area!,” he says.On the acquisition of US-based Lightbridge Communications Corporation (LCC), Nayyar says Tech Mahindra has got it for a modest price and will restructure it to improve operating margins. Over the next two three quarters, Nayyar expects the company to regain its margins.Below is the transcript of Vineet Nayyar’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Latha: I am excited about the fact that you are one of the guys who has got the payment bank licenses what are your plans over there? Will you be tying up with somebody, will this be a go it alone kind of venture and what does it mean to the listed stock at all? A: Implementation of this is still cooking. We have two great advantages to beginning with – one, we have the technology which has been tried in 17 African countries and multiple Asian countries. Our turnover there is over a billion dollars a day; so this is something we know very well. We have also Mahindra Finance which has worked in the agricultural sector for a long time. Mahindra is a name which is recognised in the rural areas given their tractors and their motorcycles. So, net-net I do believe that we have a multiple advantages. Now we have to make it work and that is always a big challenge.Latha: You wouldn’t be wanting to tie-up with any telecom companies or anyone else? Are you looking for a further partner?A: At this point of time no. Since we have the technology, why would we want to go with any other company in the telecom area! Sonai: Just to come back to the core Tech Mahindra business itself the one concern that street has had for a longtime has been the low margins that Tech Mahindra has delivered. Even the quarters gone by the EBIT margins at 12 percent was significantly lower than a lot of your peers like Infosys and Tata Consultancy Services (TCS). Can you just give us a sense of what the trajectory from hereon will look like and when can we expect the gap between the Tech Mahindra and its peers to get narrowed in terms of margins? A: Please understand our strategy. We pickup companies at relatively modest prices and then we restructure them and make them work for us. I don’t need to tell you about Satyam, but we did pick up Lightbridge Communications Corporation (LCC) a very large company in the network space. It is a great company. It was a biggest independent company in existence in North America with the footprint all over the word. Now we are restructuring, it will take some time and it should come back. With that it will have an impact on our overall margins. However, I do see margins improving as we go further.Latha: Are you already seeing the restructuring working at LCC and is that getting reflected already in terms of higher utilisation and other parameters?A: It is not something we can do instantly overnight because if we could LCC would have done it themselves. I won’t say it is a very long haul but it will take few quarters before it shows results. However, I can already see some improvements taking place in their EBITDA margins Sonia: So, when you say margins will comeback what kind of timeline are you looking at because I remember you used to clock in 20 percent margins in FY14 and now the space is become very competitive. So, by when do you think you could get back to 20 percent margins?A: I think we will do it in about two or three quarters hopefully. As you know one can’t commit, one can’t even foresee the headwinds which can come in or the tailwinds but I would expect that in a few quarters we should be right there. Latha: How is the business in terms of new orders? Has it improved globally or are there pockets where the competition is so intense that actually things are getting even more difficult?A: I am quite positive about the growth of business. You are right, competition is increasing and the nature of the market is changing. The question is how best do we prepare ourselves for the changed market. That is a much bigger challenge at this point of time for all service companies especially the Indian ones to prepare for the new environment we will be facing very soon.Latha: I assume you are alluding to the fact that social media and analytics are the new calling?A: Analytics, internet of thing, business process as a service so all these things are happening. I think the winners in the next round will be the people who are ready to provide capability to all those who needed it as we go forward.Latha: So is Tech Mahindra prepared? Are you seeing yourself better in that position compared to say a quarter ago or two quarters ago? A: As I said this is one thing which has our complete focus at this point of time.Sonia: Can you tell us a little bit of about what the trajectory for the telecom vertical will look like now? You had a decline in your telecom revenues by about 4 percent quarter-on- quarter in the previous quarter is there any recovery expected anytime soon?A: I gave you the basic reason for that. I think we will see some uptake but please don’t push me on this because we normally do not make projections. Latha: We just wanted to know if certain parameters are improving so as to get a handle on the margins for instances is utilisation better. You improved from 71 to 74 so is that better, is attrition down, it remained at 19 percent are these parameters improving?A: I might as well tell you the numbers then.