Don't fancy rupee fall, benefits only temporarily: Tech Mah

Most analysts bet on export sectors like IT and pharma when the rupee starts falling against the US dollar. However, it may not always be a rosy picture for all companies explains Vineet Nayyar, executive vice chairman, Tech Mahindra.

Nayyar explains that despite gaining from the currency depreciation, it is only a marginal benefit that they accrue. The company gets only a 35-40 paise gain on every depreciated rupee. Also read: Sapient among Top 10 Most Admired Companies in IT Sector
"Even a company like ours which has possibly the highest offshore component, about 80 percent, for every rupee of depreciation our advantage is at best about 40 paise because 20 percent of the people are abroad and their cost is about two-three times higher than what we have in India," explains Nayyar. Below is the edited transcript of Nayyar's interview to CNBC-TV18. Q: How big an advantage of the rupee is or does it after a quarter or two get eaten up by your clients because they try to price this in?
A: Yes, there is a tailwind which we get but it is temporary and it is not proportional to the actual depreciation. For example, even a company like ours which has possibly the highest offshore component, about 80 percent, for every rupee of depreciation our advantage is at best about 40 paise because 20 percent of the people are abroad and their cost is about two-three times higher than what we have in India.
Add to that the visa cost, the travel cost, family support. When all that adds up, we gain in the nature of 40 paise to 35 paise for every rupee of expenditure. Then, there is also inflation which occurs within the country. Because of depreciating rupee , that too needs to be factored in and the clients are wise enough to it very quickly and they price it in. So, net-net, though we gain temporarily, it is neither good for the country nor for the economy and can definitely not be good for us in the long run. Q: The deal momentum is looking quite good especially for a company like yours. We have seen solid deal wins in the quarter gone by as well but how does the trend look from here. Is it sustainable and what is in the deal pipeline as we head into the rest of FY14?
A: I think we can break it up into two; the enterprise side and the telecom side. In telecom side, we have diversified our activities quite dramatically in the telecom sector. Typical telecom IT companies have originally operations support systems (OSS) and business support systems (BSS) and that’s all they looked after and that is the kind of programming they did. It was basically based on programming.
After that we started in actual maintenance of the system and operations of the system and now we have gone into networking. We are going to look after the entire operations and maintenance of the first networking deal we got in Belgium. So, we have expanded our portfolio and therefore the uptick one sees in revenue is on account of our having so diversified.
This diversification was earlier done by Alcatel-Lucent and now we are getting into it because we do believe that in this space also given our technology background we can be affected and we can expand our portfolio. On enterprise side we are also gaining a fair amount of momentum. Therefore, net-net this momentum hopefully will continue for a while. Q: You all have a stated goal of USD 5 million by 2015 in your revenues. Wouldn’t that require one acquisition?
A: Firstly, let me point out that is an aspirational goal and secondly, acquisition, non-organic growth is very much a part of our strategy. We do believe that we have one capability namely to be able to pull in a company and improve it substantially. This is not only true for Satyam but also all other acquisitions we have done over a period of one-two years. We have increased marketing reach and expanded on the profitability. So, I do believe it is a part of our strategy and yes to reach this aspirational goal, one-two or more acquisitions would be necessarily. Q: Post the merger coming through what kind of market share gains can Tech Mahindra hope to achieve. I am trying to understand in the bigger scheme of things when you have a couple of three or four big players and now with Tech Mahindra joining that post the merge, how much in terms of the market pie can you increase?
A: I do believe that there is a lot of synergy which can be extracted. For example, we have now access to enterprise market and in the current economic scenario and technology scenario, there is no enterprise which can do without communication. Communication has become a lifeline of all enterprises and as it has of households.
That gives us a certain amount of advantage being the leader in telecom on the enterprise side and similarly we have capabilities on the enterprise side which are needed in great measure by the telecom companies whether they are in SAP or in Oracle or elsewhere.
So, not only can we do the normal technology work in telecom but we can also help on manage your enterprise. Consequently there is synergy, we will go after it and let us see what the results are. Q: Can we expect that acquisition in FY14?
A: As they say, watch this space.