Telecom solutions provider Tech Mahindra said it will continue to move ahead with its longer duration and big deal strategy. The company on Monday reported a loss of around Rs 221 crore for the fourth quarter ended March 31, 2008 after incurring an exceptional charge of around Rs 440 crore towards an exclusivity payment to British Telecom (BT) for a long-term strategic transformation contract.
The company had made a similar payment of about Rs 525 crore in the fourth quarter last year to procure a $1 billion deal.
According to a senior official with Tech Mahindra, the company will continue to focus on the telecom vertical with big deals that will go for a longer duration. ?We currently have a backlog of $2 billion and are confident of our strategy going ahead,? said CP Gurnani, president, international operations, Tech Mahindra.
An analyst from a broking firm added that the long-term strategy will put pressure on the company?s short and mid term margins and affect cash flows. Experts say that value additions coming to Tech Mahindra from the BT deal, expected to be about $750 million, may not be very high as expected. This is because a lot of uncertainty remains over the kind of work to be done for longer duration deals.
Harit Shah, an analyst with Angel Broking, says, ?BT can bargain hard with Tech Mahindra. For FY 08, the company has booked revenues of only $30 million which is just 3% of the $1billion deal done with BT in Q4 2007.?
Though the company?s employee utilisation has gone up to 73%, experts feel it will have to ramp up execution levels. Shah added, ?With a guidance of adding 5,000-5,500 employees for FY 09, we can expect some ramp up happening at Tech Mahindra.?
Rajesh Chandiramani, GM, sales & marketing, Tech Mahindra said, ?We are engaging in a similar deal with AT&T and another three to four similar deals are in the pipeline.? Currently, 75% of the company?s revenue comes from Europe, but the company is now focusing on Africa, Australia, New Zealand, Canada and Latin America. ?We are looking forward to 50% of our revenues from these geographies in the next few years.?
Tech Mahindra?s stock closed at Rs 868.60, down 4.17% on Wednesday. Shah added, ?The company?s dependence on BT and focus just on the telecom sector will lower the valuation of its stocks vis-?-vis other leading IT companies.?