TechMa sets sights on '$3 bn company' tag

Milind Kulkarni, the newly appointed CFO of Tech Mahindra, is candid enough to acknowledge the impact of foreign exchange headwinds and complications that may arise out of the US Immigration Bill. In an interview, he told Beryl Menezes that India’s fifth largest IT vendor was working towards becoming a $3 billion company. TechMa on Monday reported a 27% jump in net profit for the year at Rs686 crore, up 7.6% sequentially, and a 21.7% jump in revenues at `4,103 crore, up 8.9% sequentially, including a reversal of impairment provision. Excerpts:    

As the new CFO, what is your new  financial strategy for Tech Mahindra?
I have been part of Tech Mahindra 11 years in the finance role, so financial strategy will remain un-changed. However, the merger into a single entity will decide new financial decisions, going forward. India’s contribution to revenues was 3% in the quarter. Thus, this means that while BPO hiring has slowed, IT hiring has increased – counting as 53,337 employees, out of the total 83,063 at the end of June.

How did the rupee depreciation help Tech Mahindra?
There was a 1.3% or 130-basis point gain to margins, amounting to $8.5 million in actual numbers on account of rupee depreciation. However, continued depreciation may drive pricing down, which is not good for business. We have decided to go slow on our long-term hedging policy due to cross currency headwinds. Forex gains in the quarter amounted to $24 million. We are looking at retaining our Q 1 numbers and growing close to Nasscom’s 12-14% guidance for FY14.

Europe growth at 1.1% sequentially was very low compared with your peers, as well as the 11.4% US growth...
We had a de-growth from one of our top two clients in the quarter in Europe. However, our top 10 clients are all doing well, and out of four large deals expected in BFSI, retail and telecom, two are from Europe. Which is why we also decided to open two new centres in Belgium and the Netherlands, expecting a strong deal pipeline – especially from the Nordic regions and Germany. In the US, we are positive on improving discretionary spends as well as revenues from new IT platforms and 20 different industry-specific solutions. However, we believe the rebid market will still be bigger than the discretionary spend market.

What about growth vertically?
After BFSI, manufacturing, our second-largest vertical, grew 5.7%, media and entertainment 8.7%, retail 6.1%, and telecom 2.5%.Our enterprise side has also shown some improvement in the quarter, with an overall volume growth of 4.4%.

This quarter, did you see more deals from IT or telecom?
This quarter, there were more deals from telecom as we are still a telecom-focussed company. However, this may change, going forward. Our active client count stood at 567 in the June quarter versus 516 in the last quarter.

What was the impact of wage hikes on margins?
We would be giving out wage hikes of 8% for offshore and about 2.5-3% for onsite in January. This is due to synchronisation, post the merger, and the potential we see to improve utilisation.