Tech Mahindra’s CP Gurnani, MD & CEO and Manoj Bhatt, CFO, talk about the quarterly numbers that the company has posted, margins, $290 million deal win, future of digital contracts and recovery in the global market among others during an exclusive interview with Swati Khandelwal, Zee Business. Edited Excerpts: 

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

Q: Numbers in terms of an operating margin of 10.1% and profit growth of 20.9% has comfortably beaten the street estimates. What gave you this kind of numbers?

CP Gurnani: There was a need to be firm and maintain agility in this COVID and pandemic situation. We focused on certain things from day one to bring this agility at Tech Mahindra, which has turned up to be a playbook for the company. It became a playbook because Satyam was also acquired amid a crisis. The playbook had a focus on Focus on free cash flows: You have seen that our free cash flow is at all-time best.
Cost Management: Whatever is your unnecessary expenses or you anticipate it, for instance, amid work from home, we anticipated that there is no need for rented buildings. So, we gave notices to the rented buildings and requested them to let us vacate. In this way, we had a great focus on cost management. However, the revenue has reduced and if seen in Rupees terms then it has decreased by almost 4% on a quarter-on-quarter basis and in constant currency in dollar then it has declined by 6.3% on a quarter-on-quarter basis.   

But we are happy because we were able to regroup ourselves and got us ready for a war. 

Q: There is a need to maintain this margin. Do you think that this stability can be maintained in the next few quarters as the coming future is volatile and uncertain, yet?

Manoj Bhatt: We are trying to achieve agility; even CP has talked about it. We are also trying to find out how to get nimble, then there are two common denominators of cost where we should know how to look at the cost and align with it just in time for new recruitments among others. So if I look at it overall then I will say that this was the worst quarter for us based on the margins and we hope that the margin will improve from here. We are doing two-three things for it (i) automation and offshoring, (ii) increasing synergy with portfolio companies on both revenue side as well as cost side and (iii) our large deals are running up in a ramp-up mode, so we will get the margin benefits from it through the quarters. So, we are focusing on these things. You said have said a good thing that there is uncertainty but having an eye on the ongoing situation we have concluded that we will try to increase our margins from here.

Q: Let’s talk about the deals and we have seen that you have won deals worth $29 crore or $ 290 million in this quarter. Going forward, how do you see it panning out in rest of the FY21 and has there been any kind of pricing negotiations with the clients?

Manoj Bhatt: If I look at the funnel, then its size is increasing but amid the ongoing uncertainties, the deal cycle has elongated and deal closure is taking more time. So, if I have a look on this deal win of $290 million in that context and compare it with our run rate of about 400 to 450 which has gone down to 290 to 300 then there is a drop. But if I put it in the context of the environment in which they were won then we have done a good thing. I think the conversions will also be slow because of the uncertainty but the deal funnel is higher and it is better. Another thing you were asking about pricing then it is not about pricing per se it is about the total cost of ownership that happens at the customers’ end. It has multiple parameters like offshoring or SLA restructuring or some other terms are restructured and we have got such requests in few verticals, it is not widespread. So much material impact has not happened yet, but if it happens in future then we will inform you about it.

Q: Tech Mahindra is a global company with its exposure in the US and Europe. Which market do you think will recover first, what is your estimate and analysis? What kind of recovery pattern are you seeing in the US and European market?

CP Gurnani: A common trend is visible in all markets and it is of maintaining a balance between life and the livelihood and every government is maintaining the balance between these two factors. In this, you would have heard about on and off in which there is a lockdown today but not the next day. Meanwhile, the country’s like Australia has said that no one should come here. So, one pattern is visible in which on and off exercise will go on further. Secondly, I believe Europe will show more recovery because they are on a summer vacations holidays still and when they will get back from the holidays then there will be a need to grow the economy further. While increasing the economy they will realize that there cost equations, whether it is France, or Germany or Switzerland, should be improved further. So, I feel that in the next two quarters, particularly after September recovery will be better within Europe. 

Q: You have spoken about the deals wins in this quarter. Now, let us know about the kind of focus on digital contracts and do you think that more clients are opting for digital contracts, if yes, than what percentage is moving towards digital contracts? Also, tell us about your outlook for digital contracts and what percentage of your $290 million deal wins is such type of contracts?

Manoj Bhatt: If we have a look at the digital then I think that all the demands that are visible in future are digital because the online to offline model is changing and COVID has accelerated it. So, whenever we talk with a customer then it is about the digital strategy, remote working, and managing diverse workforce across the multiple locations, cloud strategy and security. I think these are the four or five words that come into the conversation of every client. If I have a look at my company then the digital revenues have been flat despite the drop on the other side of revenues even in this quarter. This means digital demand is holding and it will accelerate because many customers, whether it is e-commerce strategy, supply chain management, who are doing this are willing to invest in it. So I think that the market demand for digital will continue to be very-very strong on the future also. 

Watch Zee Business live TV below:

Q: What is your sense on the impact of the H-1B visa ban by the US till the end of this year? Can you please quantify its impact on the company?

CP Gurnani: As I have said earlier as well that the offshore revenue will up this time because if today we are working on the systems from the screens by sitting at our homes then it will not make much difference whether you are doing the work by sitting in Europe or Singapore. However, we believe that timing-wise we have spent a lot to get H-1B visas but have not utilized those as either the embassy is closed, and if they are opening then the airlines are closed. So in a way, H-1B is not an issue, but the issue is more about how to utilize what we have.