Bulk of 5G-centric spends to be pushed: TechM's CP Gurnani, Manoj Bhat

"Huawei continues to remain our customer. But they are going through their own cycle, in terms of the US (sanctions) and Covid-19 impact," said TechM's CFO Manoj Bhat

Tech Mahindra (TechM) delivered better-than-expected numbers in the June quarter on the back of various cost optimisation measures. In conversation with Sai Ishwar and Debasis Mohapatra, the information technology services firm’s Chief Executive Officer and Managing Director C P GURNANI and Chief Financial Officer MANOJ BHAT said even though the demand environment remains ambiguous, things have unlocked with the world economies opening up. Edited excerpts:

Most of TechM’s larger peers have indicated that the peak of Covid-19 pain is over and the worst may be behind us. What’s your reading of the environment?

Gurnani: For anyone to say they know the bottom or top is the best guess of the day. Fact is, the US reports nearly 50,000 Covid cases daily, as opposed to India’s 48,000 cases. What is ‘worst’ in such a scenario? I can only say that the ‘unlockdown’ has helped economies. The situation is better than what it was at the end of March. Other than aerospace, hospitality, and travel, there is a lot more confidence in other sectors. TechM, too, is feeling upbeat.

Will TechM see positive sequential rise in revenue in the coming quarters?

Gurnani: It is impossible to have visibility (in this environment). As a company, we have never given any forecast. Today, as a business planner, it is impossible to say what the visibility will be six months hence. The best brains in the industry are predicting negative gross domestic product growth in most markets. This means, people (may) delay their (spending) decisions. The good news is, we are in the technology business and everybody will have to remain competitive and go digital.

TechM hit an all-time high in terms of free cash flow. Will you be pursuing mergers and acquisitions to drive revenue growth?

Gurnani: Our capital allocation policies have become a lot more defined. We have been focusing on augmenting our capabilities. If you look at all our recent acquisitions, Cerium was a semi-conductor capability augmentation. Born Group (acquisition) was done for augmenting capability in customer-experience management, and Zen3 for artificial intelligence. We continue to look for such capability augmentation.

There are robust deal pipelines stacked up for most players, but the conversion is slow. Do you see ramp-ups picking up?
 

Gurnani: The first 45 days (of the first quarter) were extremely sluggish as people were slowly getting back to business. We saw conversions happening in the second half. Most of our deals — of the total $290 million — came in the later part of May and June. There is increased momentum in that sense, but if one looks at the overall funnel, the size of deals is also substantial. That’s where we are saying the decision-making could take longer than usual. On existing deal ramp-ups, there is not much impact.

What is the progress on 5G-related projects? Do you see any Covid-19-led impact?

Bhat: It is a mixed market with respect to 5G. Some are talking about accelerating projects, while others are seeing delay. Considering the current economic uncertainty, we don’t believe much spends will be happening in 2020-21. We feel it will get pushed to six months into 2021-22. This includes 5G investments, roll-outs, and enterprise 5G projects.

How will the Indo-China geopolitical stand-off impact your partnership with Huawei?

Bhat: Huawei continues to remain our customer. But they are going through their own cycle, in terms of the US (sanctions) and Covid-19 impact. We are working with them closely to see what the solutions are. But the India-China issue will not have a material impact on our numbers. The same applies to our on-ground operations in China.