In the big league

Following a slew of acquisitions, Tech Mahindra is on course to grow into a $5-billion company

Mergers and acquisitions offer a rigorous test of the mettle of a CEO, and in recent times, Tech Mahindra has successfully demonstrated how a company can enhance shareholder value through an acquisition. It bought a 42.7 per cent stake in Hyderabad-based Satyam in April 2009, when it was on the verge of collapse following an accounting scandal.

Today Tech M is among the 'Big Five' software service exporters from India, and is growing faster than industry leader Tata Consultancy Services. The company ended FY14 with revenues of $3.09 billion, a 17.7 per cent year-on-year growth. Deutsche Bank Markets Research has raised its FY16 and FY17 earnings estimates for Tech Mahindra by 3.5 per cent each and reiterates that the stock is one of its top technology picks.

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And the man who has steered Tech Mahindra into the big league is C P Gurnani, popularly known as CeePee. Each time the Street has doubted his ability to deliver, he has surprised them. Be it managing the acquisition of Satyam or parting ways with British Telecom, he has never disappointed. Even after the ammortisation of revenues from BT ended, Tech M did not falter. Over the past eight quarters, telecom has actually led the company's growth, with a compounded quarterly growth rate (CQGR) of 5.9 per cent, versus the overall company CQGR of 4.2 per cent, says one analyst with a foreign brokerage.

 

As managing director and CEO of Tech Mahindra, Gurnani has played a pivotal role in Mahindra Satyam's three-year transformational journey and the eventual merger of the two. A chemical engineer from National Institute of Technology, Rourkela, Gurnani comes with vast global delivery experience and has been a part of many turnarounds, joint ventures and acquisitions. Equity strategists believe that his client-facing expertise is helping Tech M mine existing client relationships even better now, which explains the company's superior growth rates and high returns ratios.

The acquisition of Satyam was critical for Tech Mahindra back in 2009, as it gave the company scale and competencies in verticals other than telecom. But now, as the industry faces growth challenges, Tech Mahindra has a plan in place to clock higher-than-industry growth through in-depth vertical knowledge and service capability. Telecom has been facing challenges, but Tech Mahindra continues to clock higher growth rates, owing to its expertise in the vertical.

Tech Mahindra appears to be on course to enter the big league with gross revenues of $5 billion, through both the organic and inorganic route. It has acquired several companies, to build capabilities across verticals. The acquisition of Lightbridge Communications Corporation for $240 million in November 2014 is in sync with the broader strategy of acquiring capabilities and growth. Tech Mahindra ended FY14 with year-on-year sales growth of 17.7 per cent (in US dollars) - the highest in the industry. Analysts expect the company, which is currently the fifth-largest software exporter, to report revenue growth of 18 per cent in FY15. Tech Mahindra is following the same strategy of deepening existing relationships with clients to drive growth. Also, in the second quarter of FY15, its active clients list rose to 649, from 632 in the previous quarter. Improved client mining and strong growth in America across key verticals has helped it post a robust 5.2 per cent dollar revenue growth.

The telecom network design and management services market is a $41 billion opportunity and Tech Mahindra is focussed on this market. And though more than 50 per cent of the company's revenues come from the telecom vertical, its revenue trajectory has not taken a hit. Over the last four quarters, analysts claim, Tech Mahindra has signed deals with a total contract value of $1.2 billion.

A dyed-in-the-wool techie, Gurnani has seen India's outsourcing industry take shape almost from inception and is looking at managing and designing mobile networks across the globe. Over the last 32 years, Gurnani has worked with HCL Hewlett Packard Limited, Perot Systems, HCL Technology and Tech Mahindra. Prior to joining Tech Mahindra, CP was the Chief Operating Officer and a co-founder of Perot Systems India Limited, initially set up as HCL Perot Systems. At HCL Perot Systems, CP oversaw the transformation of the HCL Corporation-Perot Systems joint venture into one of India's top IT services companies.