'We are experiencing good traction'

The IT sector seems to have matured into a new phase of growth. This phase has several challenges ahead. The need of the hour is to remain sharply focused. Tech Mahindra Ltd (TML) continues its concentration on the telecom sector.

CP Gurnani, president-international operations, TML, speaks about the trends in the telecom industry and the company’s stance to get the best of the developments in an interview with RK Mehta of CyberMedia News.

How do you see the growth in IT spending by telecom companies? Is it in line with your expectations?

We look at the telecom as a sector comprising telecom service providers (TSP) and telecom equipment manufacturers (TEM). In the TSP segment, Ovum research estimates total IT spending is about $33 billion and this is growing at about 6 per cent.

There would be increased margin pressure on TSPs due to competition as there more number of players in most markets. And also due to competition from non-conventional players like VoIP providers, cable operators. Our customers are therefore looking at data-based services and value added service to improve margins.

Some of our key customers are looking at transforming their networks from switched networks to IP-based networks to enable them to face the new challenges in the market.

As a result of this, TSPs are looking at outsourcing and off shoring as a long-term strategic move, both to reduce costs and to improve time to market their new initiatives.

Tech Mahindra is well positioned to capitalize on this growth. With strong offshore capabilities, and proven offshore methodologies, we have been able to grow our business both within existing clients as well as acquire new clients.

There has been a concern that TML derives its revenues from the telecom sector spending. This is viewed to be volatile as regards revenues. What is your move to reduce this volatility?

You have to look at overall IT spending and offshore IT spends separately. At the moment, the overall IT spends by telecom is on the upswing due to discretionary spending on new network rollouts. New rollouts are necessary for maintaining the TSP competitiveness. Indian IT companies are benefiting from this. Secondly, we do a lot of work in the legacy area where the nature of work is more maintenance and sustenance of IT platforms.

In the event of any slowdown, there is a possibility of deferral of some of the discretionary spends, but the maintenance spends would continue. Also, our belief is that since the discretionary spends are business critical for TSPs, the possible reaction of TSPs is to continue these programs but try to do more work offshore to get better value. So be it a slowdown or a boom, the offshoring phenomenon is here to stay.

How many new client additions do you expect this year?

We are experiencing good traction in the market. Beyond that I would not like to make a forward looking statement.

What would be the headcount addition in the current year? How are you placed to gather them?

We are not commenting on a year-end headcount number. We have added about 4500 headcount in the first six months of the year.

From a recruitment perspective, finding skilled resources is a challenge. We have expanded our campus recruitment program quite substantially this year. We have made close to 3,000 plus offers to students on various campuses, and they will be joining us next year. We have also expanded our off-campus recruitment this year to meet our growth needs.

I think the other aspect of the recruitment process is to find the right profile of senior-level people who can manage our large engagements with our clients.

Your average realization per employee has been between $25 and $26 for the past two full years. Do you see any improvement in the coming year?

We have not seen any increases in our average realization. We expect billing rates to be flat with possibly a slight upward bias.

The attrition rate has declined considerably. However, it remains a tad higher than the big players. How are you going to improve on this front?

Over the quarters, our attrition rate has come down. However we have had a spike in the last quarter to about 21 per cent. Our analysis shows that this is mainly due to increased demand in the telecom sector. We also had some attrition due to certain location preferences of our employees. We are currently expanding our pan-India presence.

The total share of offshore business is around 78 per cent, do you see any change in this ratio as many analysts believe this to be a risk in operations?

That number might not be accurate, but it is fair to say that we have the highest offshore percentage amongst similar companies our size. Our delivery model has been designed to operate at such high offshore percentages. About 2.5 years back we had an offshore ratio which was much lower (about 35% of our revenues were offshore) but we made a conscious effort to reduce our onsite presence. Our robust methodologies ensure that client delivery happens seamlessly even with a high offshore ratio.

How are your acquisitions like Axes Tech shaping up? How much of a contribution do you see coming from these acquisitions in the near-term?

Last year we acquired Axes and renamed it TM R&D. We have focused for the last 10 months to integrate this acquisition and I am happy to report that this has gone very well. We are seeing enhanced traction in revenues as well leads in the TEM space. We are developing additional service offerings based on TM R&D skills and our traditional skills in TSPs, which we hope will find acceptance in the market.

Are there any acquisitions lined up for the current year? What space would you be looking for acquisitions, if any?

We have a clearly defined M&A philosophy; it could also be for entry into a new market.

Likely areas could be the BSS space, the network facing space.