Will offset Brexit margin hit in due time: Tech Mahindra

Tech Mahindra reported a mixed set of numbers for the first quarter this fiscal. While the margins have continued to stay under pressure as the company's telecom business took a hit, the company's topline growth and net profit have managed to meet expectations. Speaking to CNBC-TV18's Kritika Saxena, Vineet Nayyar, Vice Chairman of the company, said Brexit won't impact the company's performance in the long-term.On being asked about the short-term strategy, Manoj Bhat, Deputy CFO at Tech Mahindra, said: "From a hedging perspective, we have been very consistent. We go out to two years and we have been doing this for a long time and that helped us because we are well hedged for this year and next year." Bhat is of the view that the company will recover the impact on margins in due time.Below is the verbatim transcript of Vineet Nayyar and Manoj Bhat’s interview to Kritika Saxena on CNBC-TV18.Q: How has Brexit impacted the margins and growth trajectory of the company?Nayyar: Whenever there is political uncertainty, economic decisions get deferred. When economic decisions get deferred, our demand comes down. However, having said that, I do believe that Brexit, fundamental as it is, is not going to have a long-term impact. Free zone was a facilitator; free zone was an outcome of an idealistic world where they said Europe is one entity. They now realised that it constitutes of number of cultures and number of work habits. Britain may not be the last country to leave the Union. However, is it going to be disaster? I don’t think so. Q: What are you doing to put in place levers that at least from the short to medium-term there isn't as drastic an impact of Brexit? Bhat: If you look at the impact, there are two levels of impact. The first level which is immediate for us is the currency shift and the margin impact on account of that. The other impact which is still playing out in my mind is that how do customers react, is this creating some uncertainty on spends? On margins, maybe we have some room to move up some of our levers and try to recover some of it. The longer term, decision making slowdown kind of things, we were not still seeing it but as we see it, we might have to come up with more compelling propositions with customers to offer value. That is the way I would look at it. Q: No short-term impact or changes in your hedging strategy? Bhat: From a hedging perspective, we have been very consistent. We go out to two years and we have been doing this for a long time and that helped us because we are well hedged for this year and next year. Q: Tell us in the long term, if you can quantify the kind of numbers that you are looking at, how much will the impact be of these acquisitions altogether and how much time do you need to give in looking at synergising these acquisitions over a period of time? Nayyar: We have looked at niche areas where there is a need and where we did not have competency and that is what we have gone into. Pick up any acquisition and I will tell you the rationale because we don’t look at the company till we see a fit, till we see it as an addition, till we see it as a complimentary or a supplementary addition to our capability. Q: What is your strategy to maintain any volatile areas that you may have to witness as a result of pricing decline? Bhat: There are certain portions of our business which are more kind of the competitive intensities, more than the other portions of the business. So, one is we have to manage the mix and within the more competitive pieces, I think automation and how do we use automation and new technologies, that is one of the key things we are working on in terms of there is an organisation wide initiative to make sure that we deliver the same outcomes with less input cost in a way; so that is one. The second is in terms of models are becoming outcome based which could lead to whether we use -- platforms is a great example. So you are really actually running it off a platform and pricing on outcomes. So, these are some of the techniques to work through the pricing situation where the customer expectation and our margins can be both managed. I think that is the path we are proceeding on.