"Indian IT majors can emerge as this decade’s leaders in technology.” Milind Kulkarni, Tech Mahindra
How did the IT industry fare in Q1FY14?
Most of the companies in the industry have exhibited growth in-line with or higher-than-expectations, which signifies a good quarter. Increase in discretionary spends in the US and improved customer confidence has led to the April-June 2013 quarter being a strong one for our multi-billion industry. This could be considered as a sign of an improvement in the outsourcing industry’s outlook.The price environment continues to be stable and INR depreciation will also help the IT industry, which is internationally focused.
We also see customer confidence in Tech M due to the completion of the merger, which has led to a bigger and much stronger company with no baggage of history which the erstwhile Satyam carried due to the fraud committed by the earlier promoters.
How did Tech Mahindra perform in this background?
Tech Mahindra has performed quite well and has reported good sequential and year-on-year growth. This is evident from our revenue increase of 21.7 per cent YoY and 8.9 per cent QoQ.
We have had a very good quarter, with growth coming from major verticals, almost all geographies and almost all clients. The revenues in dollar terms were at USD 724 million, representing 3.7 per cent growth sequentially. Complex IT Brazil was integrated from May 2, and it contributed about USD 8 million. So, the quarter-on-quarter organic growth was 2.6 per cent. Revenues in 5 constant currency terms compared to Q4 stood at USD 729 million, which is a growth of about 4.4 per cent. Cross-currency had a negative impact (-0.7 per cent) because all the currencies depreciated against the dollar.
Our EBITDA for the quarter was USD 152 million, a margin of 21 per cent, which means margins expansion of about 55 basis points sequentially. Other income for the quarter was about USD 37 million higher because of the forex gain of about USD 24 million and interest income of about USD 11 million.
The PAT for the quarter was at USD 121 million. There was an exceptional reversal of provision for impairment of investment in subsidiaries, and if you take that out the PAT is up by about 29 per cent sequentially. The net margin has come in at 16.7 per cent. Cash and cash equivalent is at USD 615.4 million, and the debt level is about USD 125.7 million.
There has been an upward swing in the win ratio, both in terms of number of deals and the total contract value (TCV) of deals. Any apprehensions on the part of customers in dealing with two companies have been removed, and our new positioning of Connected World and Connected Solutions is also resonating very well.[PAGE BREAK]
What are the major growth drivers for the industry at the moment?
BFSI & Manufacturing are showing great traction. We have also seen good traction in Healthcare, Utilities & Airports. Accessibility across multiple platforms has been one of the biggest drivers among the technology verticals, and we are constantly building solutions and innovating in this space to support our customer.
Despite multiple contributors currently, in the future the IT industry shall be driven by:
- IT Consumerisation - Consumer technologies adoption in enterprises
- Unified Networks - Gateway & Network, Sensors Connectivity & Network
- Internet Of Things - People, animals, water pipes, cars, devices, buildings, cows, trees, shoes, machines, everything getting connected to the internet
- Elastic Storage & Super Computing - Availability of high storage space & super computing power at an affordable price
- Faster Analytics - In memory appliances, Columnar Databases, GPU Chips & NLP, which support analysis of volume, velocity and variety of data
Tech Mahindra has deployed a Unified Business Transformation Platform - Networks, Mobility, Analytics, Cloud and Security (NMACS). NMACS-ising businesses with the confluence of third generation technology forces means building future-ready smart businesses. NMACS brings change at the pace of our customers - Incremental … Evolutionary … Revolutionary.
What, according to you, are the challenges that the industry will face ahead?
Despite the growing US economy, the labour market conditions through US and Europe will always be a challenge for Indian IT players. Government policies constantly affecting working conditions and regulatory norms such as visas, taxation, etc. pose a constant threat to companies operating in these regions.
From a domestic viewpoint, high currency volatility and inflation are areas of concern. Disruptive technologies are always forcing companies to innovate and adapt in order to sustain. The industry needs to continually explore new areas for innovation, and IP-led growth has become a norm to survive and reap benefits from the market. Cost arbitrage is no more a differentiating factor for the US; we need to provide end-to-end solutions for customer issue resolutions.
Outcome-based pricing models are gaining ground over Time-and-Material (T&M) and Fixed-Price models, and this is a different kind of risk. India is also likely to face a talent shortage, not in numbers but in terms of quality. With the rise of social media and cloud, security has become a major concern for the IT companies and is a feature and service that must be offered.[PAGE BREAK]
How does Tech Mahindra plan to overcome these challenges?
There are various strategies we adopt to counter these issues and concerns. We have an excellent record of enhancing our customer IP through joint patents. Our product development capabilities across emerging and ripe markets empower us to capture the ongoing product demand.
We have set up “Entrepreneurship Funds”. The fund, which is the outcome of our partnership with SBI Holdings, is a step towards this leapfrog strategy. We also facilitate the idea of ‘Intrapreneurship’ through IRIS, our internal venture capital program. Our co-innovation with customers and partners, as well as our various initiatives with AT&T, CenturyLink, Land Transport Authority, Ziggo and KPN exemplify this.
Other strategies include: Cloud computing to use flexibility, scalability and cost benefits made available through the ‘as-a-service’ paradigm; Platform BPOs to use a common business platform for multiple clients & services; Non-linear pricing models linking client expenses to business outcomes or usage instead of headcount and effort spent; Delivery accelerators to deploy reusable tools across multiple customers accelerating set up time and attaining efficiency; Branding to command a premium over competition; Mergers and Acquisitions as means to acquire new ideas, clients, service extension, patents and enter new markets.
What is your outlook for the IT industry over the next quarter and the long term?
With the increase in IT spends and growth in the US economy, our major market, we see increased traction in almost all verticals across the industry. With successful adoption of the above models of non-linear growth and incorporating them in their strategy, Indian IT majors can emerge as this decade’s leaders in technology, pioneering the next phase of exponential growth.
I believe that it will be a combination of all these factors that will equip the Indian software industry. I expect IT to stay on top, on an equal footing with global giants, and to transform India to a technological behemoth from just being the world’s back office.