Tech mahindra to focus on improving profitability even at cost of growth

Tech Mahindra to focus on improving profitability even at cost of growth

India’s fifth largest IT services and solutions firm, Tech Mahindra, stated that the focus of the firm would be to improve profitability even at the cost of growth going ahead.

"It is not fair for the company to have margins in 12-15 per cent range when my competitors are reporting margins in the range of 20 per cent and above. We will strive to do better both on Ebitda (earnings before interest, tax, depreciation and amortisation) and growth, but my priority is going to be Ebitda now," said C P Gurnani, CEO & MD, Tech Mahindra.

He further added that as part of improving the margins, the company would let go of businesses or deals that did not have high yields. "We will definitely look at the yield management. Some of this will also mean abandoning my field engineering kind of work in LCC. I will reduce my business there. If you see de-growth, it is because I have decided on those particular areas," said Gurnani.

The company, which recently announced its third quarter numbers, reported topline growth of 12.7 per cent at Rs 7,557 crore and profits grew 14 per cent.

The quarter also saw improvement in margins, which was at 12.4 per cent from the last quarter’s 11.5 per cent.

Gurnani also felt that the current discussion on shareholder and promoter activism has been happening in cases where companies have been sitting on huge cash piles and doing nothing about it.

"The reality is the shareholders have the right to not only know what we are doing, but they can also question what we are doing. When it becomes one of the hedge fund managers or one of the promoters, the answers will be the same, it is just that you will have to answer them in public. And I think it was overdue anyway, because some of the companies are sitting on hoards of cash. Either buyback your own shares or return the money to your shareholders through dividends. A shareholder is only asking that if you have capital, I didnt ask you to keep the capital in the bank,� said Gurnani.

In the case of Tech Mahindra, capital allocation policy at the company is discussed at least twice in the board meetings. "Right now, my capital allocation policy is that I will give dividend but at the same time, I need cash to acquire companies.

That is a better usage of capital," he added.

Among the top five IT players, Tech Mahindra has been the most active when it comes to acquisitions, either to expand its presence in other geographies or acquire companies to fill gaps in the technology landscape.

On the demand outlook, Gurnani said that there was nothing to get alarmed about. “There is some turbulence driven by geo-political scenarios, and transformation due to tech change. No one is using the word headwinds. This was evident in the decision of Nasscom to not give its guidance at the moment. When we realised there was a huge variance in guidance... Either it was at a high of 10 per cent or a low of six per cent. Added to this, we had just finished a guidance that was 8-10 per cent. More importantly, a majority of traditional business was getting repackaged and the run part of the business was getting reduced and digital change was growing. We will require time for the guidance to account for all of this," he added.

With consolidation again trending in the telecom space, Gurnani believes that this would impact the company, which gets over 50 per cent of its revenue from communication and media, with budgets either shrinking or getting re-balanced.

Article By – Business Standard