TechM to get IT right for better profit margins

Will strive to do better on earnings, growth & let go of low-yield businesses or deals

India’s fifth largest information technology services and solutions firm Tech Mahindra has stated the focus of the firm will be on improving profitability, even at the cost of growth.

“It is not fair for the company to have margins in the 12-15 per cent range when my competitors are reporting margins in the range of 20 per cent and above. We will strive to do better on  both earnings and growth, but my priority is going to be earnings now,” said CP Gurnani, chief executive officer and managing director, Tech Mahindra.

He added that as part of improving margins the company would let go of businesses or deals that did not have high yields. “We will definitely look at yield management. Some of this will also mean abandoning field engineering kind of work. I will reduce my business there. If you see de-growth, it is because I have decided on those particular areas,” said Gurnani.

The company, which recently announced its third quarter numbers, reported topline growth of 12.7 per cent at Rs 7,557 crore and profit growth of 14 per cent. The quarter also saw improvement in margins, up at 12.4 per cent from the last quarter’s 11.5 per cent.

Gurnani also felt the current discussion on promoter activism was happening in cases where companies had been sitting on huge cash piles.

“The reality is the shareholders have the right to not only know what we are doing but can also question us. Whether it is a hedge fund manager or one of the promoters, the answers will be the same, it is just that you will have to answer in public. I think it was overdue anyway because some of the companies are sitting on cash. Either buy back your shares or return the money to your shareholders through dividends,” said Gurnani.

In the case of Tech Mahindra, the capital allocation policy at the company is discussed at least twice in board meetings. “Right now my capital allocation policy is that I will give dividend but at the same time I need cash to acquire companies. That is a better use of capital,” he added.

Among the top five IT players, Tech Mahindra has been the most acquisitive.

On demand outlook Gurnani said there was nothing to be alarmed. “There is some turbulence, driven by geo-political scenarios, and transformation due to technology change. No one is using the word headwinds. This was evident in the decision of Nasscom to not issue its guidance now,” he added.