C P Gurnani explains to Malini Bhupta how the company has cracked the growth code and why telecom remains a lever of growth. Edited excerpts:
Tech Mahindra has been clocking industry-leading growth, even as the growth of the sector is moderating. How have you achieved this?
The economic environment has been a little rough over the last six years and I don't expect that to improve in the near future for the simple reasons of fluctuation and inter-dependence in the market. The world is changing and technology disruptors are strong. There is a market and opportunity but clearly for the sector there is a lot of disintermediation happening. If a technology company is looking at selling on the basis of arbitrage to the technology buyer only, then it is a challenge. Also, budgets are getting tighter. We recognised it, which is why Tech Mahindra's offering in mobility is uniquely positioned to address the $80 billion market. We continue to build on the core, which is services. Mergers and acquisitions are part of that strategy.
There is an increasing perception among investors that growth has to be acquired. Please comment.
Technology is a growth market and we have to focus on that. There may not be a wave, but there is growth and we will look at multiple opportunities, as M&A is a part of our strategy.
You have been working towards becoming a $5 billion company. With the acquisition of Lightbridge, does the target look more achievable?
When we announced our goal in 2009, it was a stretch goal. We said what we wanted to be. I have five quarters to take the run rate from $1 billion-plus to $1.25 billion. Analysts have a little more confidence than I have. We are very near to the $4 billion mark and if we are able to grow by 25 per cent in five quarters, it looks possible.
What will be the levers of growth?
The levers are network services and engineering services. I am the largest mobility services player in India. My belief is that times are changing and people need to change. The Vijay Govindrajan model is important. For instance, we are the largest music store in Africa through our platform. We have one banking licence in Nigeria. The models are changing. The five biggest may not be Citi or JP Morgan, they can be Alibaba or Paypal. If you adjust to the trends there is a huge market opportunity. It will be platforms and products with fully functional capabilities. My core is services and that is our strength. Clients want to grow business and improve operating metrics. Clients want to utilise technology or digital assets to get returns. They want better risk management, compliance and governance. If they work on operating metrics then I have a strong security practice, particularly for the bank on risk management.
Where are the challenges for the technology sector?
The time to adapt is reducing dramatically. By the time I set up a practice and delivery model, the customer may not want to wait. Cycle times have reduced, budgets have reduced and you need to have ready templates to deliver fast. Second, disruption is not happening in one business; it is happening in every business. Markets have changed for most businesses and companies need to adapt very fast.
Time to market is getting crunched, so how do you deal with it?
All I am saying is that no wave is happening like it did in 2000. We need to change and the opportunity is getting bigger.
The company's growth continues to be driven by the telecom sector even though it was seen as a risk at one point. Can you tell us how this sector has driven growth?
Telecom is not just one vertical. If you look at acquisitions, CenturyLink acquired a data analytics firm recently. A telco of the future is a backbone and the whole environment of online analytics. Today, you can deliver content that the reader wants. Online computing and analytics make decision-making instantaneous. We see telecom as a horizontal play. My focus on network services demonstrates that it is not just for carriers, but enterprises too.
Currency is expected to be a risk for technology services companies in 2015. How do you hedge it?
We cannot not do anything about it, since a large part of our earnings and expenditure is in foreign currency. So either we go to a bank and hedge it, or take the risk on ourselves. We have a dynamic hedging policy. We don't hedge completely.
Tech M has expanded margins by 300 basis points over the last few quarters. Are you looking at taking it up further?
We will continue to invest in our business and we do not guide on margins. We are not satisfied where we are and, yet, we do not want to take an industry-leading position on margins.
What is your acquisition strategy going to be focussed on?
My submission to the board has been that certain service offerings can be done through partial equity and others may need full equity participation. We chose to acquire 59 per cent in Complex IT in Brazil. We can work with partners and subsequently acquire the whole asset in future. Certain markets we will enter through partial equity or joint ventures. For a service offering where we want to build scale we will look at complete or partial acquisition.
What is your vision for the company in the medium term?
A fair amount of work is being done by the team. Our collective vision is to be recognised as a global company. We will always focus on services and offer product. In our chosen sphere - telecom engineering network - we want to be a significant player. We identified that we will transform Satyam between 2009-12 and now we are close to achieving our Mission 2015. In September, the team will get together and decide our new three-year target.
How do you see India as a market?
India is a huge opportunity for us and we take its potential very seriously. Today we have apps for payment (Mobiquity), a job portal for blue collared workers (Saral Rozgaar), outcome-based services for a leading insurance company, integrated port management, next-gen initiatives such as Smart Cities, Jan Dhan Yojana, etc. - all of these hold tremendous opportunities for employment as well. I am quite optimistic with the definitive steps being taken by the new government, and envisage a positive trend in the region for the IT sector.