DSIJ Interview with Manoj Bhat CFO, Tech Mahindra
CFOs' Top Priorities: Growth , Corporate Governance, Risk Management And Enhancing Market Share
CFOs are often the most trusted management resource for the investors. Leading CFOs of Corporate India interact with the DSIJ TEAM and share their company's vision and strategies in this CFO special edition
When major indices are trading at record valuations and are touching all-time highs in line with the US indices, the million-dollar question facing the investors is where are we headed from here and what are the industry captains thinking about India'a growth story?
Investors definitely must be asking themselves -
Are we going to get stronger from here on or weaker in terms of corporate balance sheets and economy?
Are the corporate balance sheets immune from the risks of global trade war and where is the Indian currency headed vis-à-vis USD?
While these questions are important for investors, there are many things an investor would want to know from a corporate insider, including capex plans, organic or inorganic expansion plans, future growth outlook, etc. In this special edition, we have the insiders in the form of CFOs of major corporations in India being candid with us, sharing their optimism and outlook for the economy and their vision for their own company.
CFOs are mastermind behind the growth strategy adopted by any company. The tightrope that a CFO has to walk to balance growth with risk management without ignoring the corporate governance makes him a highly valuable player in the effort of wealth maximisation for the shareholders. As a master strategist, a CFO has to be future ready and needs to own analytics that improves predictive powers. While investing in technology for efficiency is a priority, growth financing comes first in the priority list of majority of CFOs.
We find that the Indian CFOs are optimistic on the economy and in principle do not believe that the trade war is going to impact the Indian companies too much. In fact, few of the financial masterminds believe that India will emerge victorious in the trade war game, going forward. This sentiment is in sharp contrast with what the CFOs of major global conglomerates believe as per the latest Deloitte survey of global CFOs.
Majority of the CFOs we spoke to are planning for expansion, thus reflecting their confidence in the economy and positive sectoral outlook. CFOs of consumer-facing companies are bullish on the consumption story in India even as the CFO of the NBFC company is betting on increasing financialisation of savings in India. While the CFO of a leading graphite player in India is bullish on the prospects for the industry owing to the structural changes in the demand and supply, the outlook is positive for the automotive industry in India as per the CFO of the leading automotive brand in India.
Overall, the India growth story is intact as per the financial captains of Corporate India. The focus areas for almost all of the CFOs is growth, corporate governance, keeping margins intact and continuously concentrating on improving market share.
"The IT landscape is on a digital transformation journey"
CFO, Tech Mahindra
Manoj Bhat has been associated with Tech Mahindra since 2006. He brings with him a rich experience of more than 20 years in the IT and ITES industry -- across various roles in Finance, Corporate Planning & Development, Merger & Acquisitions, and Strategy, and has played a key role in Tech Mahindra's organic and non-organic growth initiatives.
He has been the Deputy CFO of Tech Mahindra from 2013, with global responsibilities for Business Finance, Investor Relations and Corporate Planning. He is also handling the role of ‘Head of Mergers and Acquisitions' for Tech Mahindra from 2011 and is responsible for the acquisition strategy of the company.
Mr. Bhat has a Bachelors in Technology degree from IIT Mumbai and a postgraduate diploma in management (PGDM) from IIM Bangalore.
As a CFO of Tech Mahindra, what are your top three strategic priorities?
Tech Mahindra has been on a transformation journey over the last few quarters, using a multi-pronged approach of digital and service modernisation, embracing new age delivery and improving operational efficiencies while reskilling our talent pool. Providing strategic inputs on investing in high yield, high growth businesses, while driving performance management and enhancement is key. The other strategic priority is to make sure our processes and systems are in line with the changing needs and demands of the marketplace, and incorporating technology changes like automation and AI, and data analytics to help steer agile decision-making. Last, but not the least, driving operating efficiencies and helping Tech Mahindra drive value creation for investors, customers and employees is a priority area.
As a company, we have started this journey well, but believe that we have to keep the momentum and achieve a lot more.
Due to rationalisation of onsite and offshore, what impact do you think it will have on your company margins going forward?
Tech Mahindra is a global digital transformation provider with operations in 90 countries serving over 926 customers - this, apart from the partner and alliance ecosystem that we work with. Also, co-innovation with clients, academia, industry as well as collaborating with start-ups form an integral part of our TECHMNxt charter.
Our delivery models, therefore, are equally global and digital, well-equipped to adapt and leverage both global and local presence. While there may be short-term dips and gains in some pockets, overall at the company level, we are on an improving bottom-line trajectory and continuously working towards expanding it. Automation and AIOps through our proprietary platforms is key margin lever to achieve this. In addition, enhancing synergies with our portfolio companies and embracing new age delivery are key areas of focus.
What are the key growth drivers for your company going forward?
For Tech Mahindra, FY19 will be a year of digital transformation and growth. Our endeavour is to clock 40 per cent of the overall revenue from digital over time. As part of our TechMNxt charter, we are betting big on the next gen technologies like Blockchain, Cybersecurity, Artificial Intelligence (AI), Machine Learning (ML), Internet of Things (IoT), Robotics and Analytics.
Our enterprise vertical has been delivering growth over the last few years and our vertical presence and our service offerings across IT, BPS and engineering services has enabled us to maintain this momentum. The communication vertical is also showing signs of growth after a period of consolidation and investments in digital and networks of the future.
Due to 5G implementation, what kind of opportunities do you see for your company's telecom vertical?
If we look at 5G , the key benefits of the 5G technology will be increased data capacity and more flexible and agile networks. 5G will enable the customers or the network service providers to choose their own strategy, whether to be equipment-based, software-based or to work with players who create an entire ecosystem of services. Tech Mahindra is geared up to leverage all the three segments. We are betting big on 5G — the network of the future, and making investments in capabilities and ecosystem creation.
Networks will also become more software-defined, which will enable multiple-use cases across segments. The first opportunity is to be part of an ecosystem of players that will deliver 5G outcomes to the customers, be it to retail consumers or enterprise customers. We continue to partner with communication services providers, equipment manufacturers and software players like Altiostar to benefit from this growth in capital expenditure due to 5G. At the second level, we have an opportunity in the whole IoT solution layer, which will enable effective utilisation of the capabilities of the 5G network. This could involve creation, implementation and managing these solutions to achieve the objectives of the enterprise customers.
We have also historically seen network spend leading a revival in IT spends in our customer base and we could see some benefits in our IT business with communication service providers as we move further into the 5G cycle.
We have already set up a lab in Bengaluru in association with the US chipmaker Intel as part of our preparedness for 5G services. Further, our VNF (Virtual Network Function) exchange programme is geared towards collaborating and co-creating solutions for the future, with more than 40 partners on-board from across the globe. I must add that like any network change, 5G is a journey and we expect benefits on revenues may start flowing in by FY20 and pick up steam later.
What will be the impact of ongoing trade war on Indian IT sector in your view? Do you intend to diversify your revenues further?
Trade wars or protectionism is not a new phenomenon. In the current global socio-political and economic backdrop, it has certainly garnered more attention. Protectionism will exist, but there will be enough windows of business opportunities as well. For the Indian IT sector, this is an issue of importance, but my view is that, given the strong demand cycle for technology and the scarcity of talent globally, there will not be a long-term impact.
What is your outlook on the IT industry going forward? What are the internal growth targets you are working on?
The IT landscape is on a digital transformation journey. We have seen a phase of rapid evolution of technology and this has disrupted many traditional business models. However, post the initial phase of this change, we are seeing many of our customers having clear roadmaps and approaches to digital. This augurs well for the industry since this could potentially speed up decisionmaking and increase revenue velocity for the industry.
We have laid a clear goal on how we as a company can add value, and this model is called RUN, CHANGE and GROW.
a.) RUN is about enabling customers to do their existing business more efficiently.
b.) CHANGE enables our customers to change their service offerings/ portfolio to their customers so that they are ready for today, tomorrow and the future.
c.) GROW is built around constructing new revenue-generating partnerships with customers by taking a leadership position in the new connected world propelled by next gen technologies
All this will be enabled by one or a combination of many technologies be it Cloud, IoT, Analytics, Blockchain and the application of these technologies will be for modernising the traditional and creating new systems.
We don't give a view on our growth numbers, but our goal would be to maintain the momentum we have in our enterprise segment and increase growth in our communications segment.
How do you manage the currency volatility at Tech Mahindra? Where do you see INR headed versus USD?
The long term trend of the INR is that it has depreciated against the USD, with short term periods where it appreciates against the USD. To insulate against this, we follow a hedging policy consistently. Our hedging policy, which has delivered us good results, takes a longer view of two years while we decide our approach to covering our exposures in foreign currency. We cover multiple currencies since we are present in most of the major markets globally. Our view is that we cannot foresee the short term movements of the INR, hence we have institutionalised this policy.
What is the best part of being a CFO of a leading IT company from the fastest growing nation in the world?
First and foremost, the global nature of business and our exposure to multiple business verticals, economies, currencies and regulations, makes it a challenging and satisfying task to assess risks, manage performance and figure out the right strategy from both financial and business perspectives.
The other advantage of being in an IT company is the exposure to various companies doing path-breaking work in new technology areas, some of whom we partner with and others whom we invest in. This keeps me abreast of the latest in an ever-changing environment.