Tech Mahindra bullish on Europe despite de-growth in Q1

Troubles in Europe had an adverse impact on Tech Mahindra in the first quarter of FY13. The volatility with regards to the euro and economic uncertainty weighed down on the company, causing a slight de-growth. However, the company’s management continues to remain bullish on Europe.

“Europe is strong in terms of the pipeline. It is going through a period of adversity, but sometimes in adversity there is also opportunity, so I am bullish about Europe,” said Vineet Nayyar, the vice chairman and MD & CEO of Tech Mahindra. In an interview to CNBC-TV18, Nayyar said that they are currently operating a programme called ‘cure and seize,’ wherein they tried to improve those areas where they were losing money or where margins are low. This has been reflected in the results of the company. Net profit grew slightly higher than expected, at 12% quarter on quarter to Rs 338 crore. Meanwhile, revenues jumped 8.7% to Rs 1,543. Below is an edited transcript of their interview with Krithika Saxena. Nayyar: We were in a programme of what we call ‘cure or seize.’ That is, there were some projects where we were losing money, they were some projects where the margins were low. We did everything to cure that situation and you see that in the results. Then, in the previous quarters some transitions were being done and we were paying for the cost of transitions. That was a strategic choice because we were going to be operating contracts which had a runway of five years. So we spent that money in transition and that depressed profitability at that point of time. But now we are seeing the benefit of the investment to it in the last few quarters and we are seeing increase in the margins. Q: You have seen a 300 basis point currency benefit this quarter. You can’t predict where the currency is going, but is it sustainable? Anand: The way things look in the immediate short term, I don’t see the rupee appreciating dramatically. But, it’s dependent on government policy and things can change fast. So I think that’s a variable we will have to live with. Q: You have been talking about several areas which are a concern from the global economic point of view. You say that Europe has seen a small de-growth this quarter, which is surprising because you have been bullish about Europe. Nayyar: Europe is strong in terms of the pipeline; but it is going through a period of adversity thanks to euro and the uncertainties surrounding various economies. But sometimes in adversity there is also opportunity. It has come down marginally, but I am bullish about Europe. Q: How strong is the deal pipeline? We have seen some talk that off-shore contracts are gradually increasing. Nayyar: Traditionally, most of the companies like us were doing quintessential IT work. Expenditure in that area has come down. On the other hand, managed services, that is you run a operation for a teleco end-to-end, that kind of business has gone up, and we are very much positioned in that area. For telecos, we run operations in Indonesia, we run it in Australia, we run it in Qatar. We were doing it for Etisalat here in India and we are now getting into Europe and into the same area. So that is two advantages – one is predictability of revenue and second is long-term flow of revenues because these contracts are for 5-7 years. So that’s the area we are getting into and I think that will give us a greater predictability as we go forward. Q: By when will the wage hikes come in and is hiring going to be on track or will there be any amount of concern on hiring plans given the economic environment right now? Ravichandran: In terms of campus hires, we have we started inviting the last year fresh graduates starting from January. They have just joined over a period of the last 4-5 months, and they are just finishing the training. We are going to be immediately starting calling the next year campuses, but there is going to be a short delay there.