Tech Mahindra’s margins for the fourth quarter of FY15 declined by 530 basis points (bsp) to 12 percent. The revenue fell due to higher employee costs and forex volatility, said Vineet Nayyar, executive vice chairman, Tech Mahindra told CNBC-TV18.
“In macro issues, it was currency movements and in micro, we have our salary increases in the fourth quarter,” he said for the decline in margins. The company has a fair concentration of business in Europe, Canada, New Zealand and Australia.
CP Gurnani, managing director & chief executive officer added that fall by 500 bsp was expected. Focus is not only on growth but also operating levers and investment in growth factories, he said.
For upcoming years, the company is looking to grow its digital business, said Milind Kulkarni, chief financial officer (CFO). He said that one cannot judge it on basis of Q4 performance and added that digital business will propel it as a future leader.
Below is the transcript of CP Gurnani’s, Vineet Nayyar’s and Milind Kulkarni’s interview with CNBC-TV18's Kritika Saxena.
Q: What were the micro and macro issues that bothered the company in the quarter gone by?
Nayyar: On the macro issues, we had currency movements and currency upheavals especially as we have a fair concentration of work in Europe, Australia, New Zealand and Canada. These were the countries where there was sudden erosion in the value of their currency, so it had to have an impact.
Add to that the micro issue. We always have our salary increases in the fourth quarter. That had an impact. We acquired certain companies, certain contracts which is why we had warned earlier that there would be little or no revenue in the first year; so, that also came in.
Consequently we had a 500 points fall. Now will that continue? I don’t think so. Will we suddenly become hugely profitable? Perhaps not, but over the next two quarters this will be mitigated and we will be back on our usual track.
Q: How long will the negative impact remain on emerging on the top line and by when; can we see this actually give a leg up to the overall top line base?
Gurnani: It was expected that there would be a drop and that these 500 bps is a part of a bigger picture. Part of where the future is and that is why when you look at us you not only look for growth but also for the operating levers that we have. Our investment in growth factories and that is really where Jagdish focuses on growth factory. We remain optimistic, which some people may call it bullish.
Q: Can you break up sectorally what are the areas which are slightly sluggish and which may be a cause for concern for you? Which are the areas where you are seeing significant pick up that you will try to probably make do with till there is some kind of sluggishness in telecom?
Kulkarni: We have taken all spheres of technology in the digital world and taken that progress forward. If you look at whether this is going to drive the next profits or not, digital business will definitely be the fastest growing because naturally it runs off a smaller base for our customers.
It also has the huge opportunity to propel us to be the future leaders for the way these businesses are going to transform and that is where we want to position ourselves.
So, we are making the right investments and as Vineet rightly said, this is a long haul and I don’t think we can judge this by what happened this quarter in a quarterly slip or whatever it is a blip. That is how we look at it.
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