Expansion of margins likely to be tough now: Tech Mah

After posting a robust set of Q2 numbers, Tech Mahindra management believes margin expansion will become tough going ahead.

Vineet Nayyar, executive vice chairman and CP Gurnani, managing director and chief executive officer, Tech Mahindra spoke to CNBC-TV18 on the company’s Q2 numbers and their outlook for the IT major.
“We have reached a level (of margins) which is fairly good. As you improve, margin increase becomes more and more difficult. Our basic selling point is the quality of service which we cannot dilute. Therefore I would say that further expansion of margins is not impossible but extremely difficult,” elaborates Nayyar.
On the guidance for Q3, Gurnani says the quarter will be slower owing to the various number of holidays in Europe and US. Below is the edited transcript of the discussion to CNBC-TV18. Q: You have posted solid set of Q2 earnings. How much did the rupee fall aid them? Nayyar: It is quite obvious that the rupee did have an impact. It had impact in terms of our numbers about 33 or 34 percent. But even if one were to neutralise the rupee numbers because of the erosion in the value of rupee, I do think we would have shown a significant growth in our margins. I think that is a significant part. Q: Q4 is typically a seasonal quarter. There are significant number of holidays which sometimes impact numbers. Are you slightly cautious for Q4 and from the conversation that you have had with clients so far how is the next one year looking like? Can we safely say that the IT industry is out of the woods that we were apparently in for two years? Gurnani: One industry that was never in woods was IT industry. Most of the majors continue to do well all through the turmoil. That is one myth that I want to clearly question.
The second part is that Q3 is going to be a slower quarter, I don’t think there is any doubt in that. All the holiday season does create lower volumes. My belief is that we should be able to remain on the trajectory of growth, quarter on quarter growth but it will definitely be slower. Q: You are cautiously optimistic, you have been cautiously optimistic for quite some time. Judging by a possibility of marginal uptick in budgets could you possibly go towards optimism again keeping Europe and US in mind specifically? Nayyar: We have reached a level which is fairly good. As you improve, margin increase becomes more and more difficult. Our basic selling point is the quality of service which we cannot dilute. Therefore I would say that further expansion of margins is not impossible but extremely difficult. Even if it occurs it will be very tiny in nature.