Interview | Milind Kulkarni, Tech Mahindra CFO: ‘FY22 will primarily be driven by a lot of transformation deals’

May 01, 2021 4:25 AM

We continue to work on deals around customer care and transformation using artificial intelligence and machine learning, and these are all becoming part of the large deal construct.

This acquisition will offer significant differentiation to the rapidly growing consulting business enabling us to drive cross-sell and downstream revenue.This acquisition will offer significant differentiation to the rapidly growing consulting business enabling us to drive cross-sell and downstream revenue.

By Srinath Srinivasan

Tech Mahindra boasts of new deal wins worth $1.04 billion in Q4 FY21. The company faced headwinds in the form of tax provisions and forex loss during the quarter, but has come back on track to growth with a 6.5% margin expansion on a year-on-year basis in dollar terms, to 16.5% for the whole fiscal. CFO Milind Kulkarni talks about acquisitions, hiring and growth areas to Srinath Srinivasan. Excerpts:

What were some factors behind the sequential dip in profits in Q4? Were there operational changes in Q4, and what is your outlook for Q1 FY22?

The EBIT margin of 16.5% is the highest that we have reported in the last six years. This has come on the back of operational efficiency, delivery transformation, comprising of offshoring, increased utilisation and automation and lower depreciation because of the conservative capital expenditure that we have had over last one year. Decline in net profit was primarily due to two reasons. Our tax provision this quarter is higher because of the one-time tax charge for our subsidiaries. Our effective tax rate is normally in the range of around 25%, but the tax rate for the quarter because of this one-off is at about 32.4%. The other reason is our lower other income, which we have seen in this quarter. And that’s because of the lower forex gain or a forex loss. But there is not a realised loss, it’s an unrealised translation loss. We have a very strong deal pipeline going into FY22 and we think it will primarily be driven by a lot of transformation deals from a cloud transformation perspective.

Where will your investments be focused in the first half of FY22? Would you be ramping up resources on the consulting front?

We continue to work on deals around customer care and transformation using artificial intelligence and machine learning, and these are all becoming part of the large deal construct. Our focus to increase our reach and momentum in customer experience management, human experience management, cloud, network space and cybersecurity. Covid-19 has pushed companies over the technology tipping point and has stamped its adoption from being merely a fad to being a trend. As more and more clients are embarking on a digital transformation journey, they are reaching out to consultants to restructure operations to be digitally robust and build agility and resilience for future disruptions. We continue to remain deeply engaged across all our portfolios, including the consulting business segment. In our efforts to cater the best experiences to our clients, we have announced the acquisition of Eventus Solutions Group, a consulting and technology service company headquartered in the US, to bolster consulting capabilities in the customer experience and customer management space. This acquisition will offer significant differentiation to the rapidly growing consulting business enabling us to drive cross-sell and downstream revenue.

What are your plans for hiring in respective geographies for FY22? What are some in-demand skills?

With the deal flow coming in and big deals being announced, we will see some normalisation in the year. We have already hired 5,000 trainees in February and they will get reflected in the numbers once they complete training. [We] have also started hiring laterals. We continue to focus on skill-based hiring, especially in emerging technologies. Currently, we are looking at hiring across digital technologies, including artificial intelligence, cloud, robotic process automation, blockchain, 5G, Internet of Things, and cybersecurity.

How are you planning to contain employee attrition in the coming quarters?

We have completed the appraisal cycle and have announced salary hikes with effect from April 1 for all bands in the company … We have also introduced a retention bonus for senior grade managers. We have given special additional variable payout to employees, while also taking some cash and stock-based retention plans for key talent, especially in niche skills. That will help our attrition to come down. So we have gone ahead and added some skill-based allowance for niche skills and project-based bonuses for key performers.

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