TechM & Mahindra Satyam complement each other

Written by Rachana Khanzode | Updated: Dec 14 2010, 04:20am hrs
Last year, Tech Mahindra (TechM) made a big bet of buying 42.66% stake in the tainted Satyam Computer Services. Now with the duos merger on the cards over the next one year, concerns over its largest client British Telecom (BT), that also holds about 25% stake in TechM, have cropped up. While analysts have pointed out that TechM is consciously improving its market valuation before the merger with Satyam, Vineet Nayyar, MD & CEO of Tech Mahindra and chairman of Mahindra Satyam says BT has been supportive till now. In an exclusive conversation with FEs Rachana Khanzode, he says why he is upbeat Satyam will bag large contracts post the merger and TechMs onus to drive the company over the next three years by focusing on the US, Middle East and Africa.

Recently, Mahindra & Mahindra bought 5.5% stake from BT in TechM. Also, there are talks about BTs concern over you merging with Satyam and thus intending to move out. So, do we gradually see BT exiting Tech Mahindra Do we see an impact on the revenue flow from BT

There were no concerns from BT about us (TechM) acquiring Satyam. In fact, they supported us in record time. And though the revenues from BT have come down, it was a conscious decision that we will reduce our reliance on BT. In 2005, when BTs contribution was 85%, we were a $125-million company and now we are $1.1 billion. So, in absolute terms, BT has grown 4-5 times. BT has gone up dramatically. What has dwarfed it is that other areas have grown faster. Currently, we have half the share of BTs wallet of all their technology spent. And the margins that we gain from these clients are comparable to BT. Pricing, though is under pressure at the moment, but we are witnessing decisions cycles to be quick now.

Last quarter, TechM booked revenues for a five-year contract in just one quarter. You have been doing so in the past as well. Analysts say this is going to help you improve the top line and thus place TechM better before you finally go for a share swap with Satyam. Is it a conscious effort to do so

To me, that is totally irrelevant. We follow Indian Accounting Standards and for Satyam US GAAP and we would have to shift to IFRS. But we dont accrue it in one quarter and it is a large purchase of hardware. We are a services company and when we buy hardware for a client, we dont see it as regular revenue. It so happened that in two consecutive quarters, we had an extraordinary expenditure and being a services company, we cannot show it as regular revenue. So, we showed it in top line and it will definitely improve it. But we did indicate that this is our discretionary spending and that is being cautious and conservative.

So would you follow the same for Satyam contracts as well

Satyam does system integration work, that is buying hardware. Usually, conservative houses have always done it this way because this is not regular revenue but peak revenue. For analytical purposes you must see the difference between services and hardware revenue that this is purely a pass-through.

TechM has always been conservative in disclosures as compared to other large tech companies. Why

We disclose everything except the future projections. Otherwise, we disclose everything.

You have indicated a merger of Tech M and Satyam . How would the final entity pan out to be Do we see any major restructuring in the company

It wont make a difference if we merge TechM with Satyam or vice-versa. Whichever way you go, they complement each other. It will be a larger group with larger verticals as compared to Infosys and TCS. It is not yet decided but it could be branded as TechM or Satyam or some other name. We do not see any major restructuring, other than at the top level or a certain amount of rationalisation in support services. This is since TechM works only in telecom and Satyam works in almost all the other areas, except telecom.

Finally, as a $2.2 billion entity, you would come to the league of tier I players and compete on large vendor consolidation contracts

I myself dont see Satyam, which is as big as TechM, as a tier II company. For pure TechM as well, we have always been a tier I player, in the sense, as a biggest pure telecom service provider in the country. And, I see myself bidding for big contracts as well.

Post re-instating Satyam numbers, how confident are you of taking this firm back on track

Unfortunately, profits were being fabricated and this company was never profitable. It never had an ebidta of more than 2% since its inception. With all our problems, we have pushed it to 7-8%, so it will take time and it will take three years that we can take it to that level of big corporations.

How is that panning out to be We havent seen any major contracts in these geographies except for Bharti Airtel-Zain

We were already working in Nigeria, Uganda and South Africa and we had recognised the potential of the continent as markets here are still unexplored, especially in the telecom space. Airtel was a good bet and we are going to be in 5 countries for BPO services with them. First, the contract in Africa with Airtel could be around $ 500 million and with expansion, we expect a large share coming to us. Besides, we will look at other major telecos in these markets. So we are going to be in Africa in a big way. These are going to be cumulatively big contracts.

Finally, post the revival of Satyam in the next three years and your tenure with the Mahindras getting over by then, do you intend to continue

I think at the moment it is my determination to move out after three years.