Mahindra sees TechM's telecom biz revival only in next fiscal

Tech Mahindra chairman Anand Mahindra today identified issues in the core communications sector as one of the reasons for its tepid performance in FY15 and said some uptick can be expected only in FY17.
"Tech Mahindra has been in the news lately, perhaps not always for favourable reasons...Softness in growth and the margins were due to multiple issues -- some developments in the communication industry, and significant cross currency headwinds and cuts in IT spend from oil and energy customers," he said addressing shareholders.
TecM's organic revenues declined 4 per cent in 2014-15 fiscal. It reported a 7 per cent increase in bottomline in Q1 to Rs 676 crore on help from the forex front.

On the communications industry, he said there was a wave of consolidation in the telecom industry globally due to which firms are in transit where spends are getting reviewed and there's a delayed decision making on IT spendings.
He said TechM is a strategic IT vendor for many of such companies and hence, this is a "temporary phase".
"Fiscal 2016 is likely to see the fructification of the regulatory clearances for mergers and acquisitions in the telecom space, which means that business would come in towards early fiscal year 2017," he said, citing a similar experience in the US market over a decade ago, when the company had benefited out of such activity in the industry.

Mahindra said the company gets 35 per cent of its revenues in non-USD currencies like the euro, the pound, the Australian and Canadian dollars, which depreciated sharply in the second half of FY15, impacting his company's performance.

The situation is stabilising now and the oil and gas sector--which was identified as another problem area --is also looking up now.
"Q1 has seen the worst in terms of sequential decline in revenue and margins and things should gradually improve as we go into the year," he said, referring to the June quarter wherein it reported a 0.20 per cent compression in the operating margin.

On recent acquisitions, he conceded that some of them impacted margins but said this is a short term impact.
"Our philosophy has always been that it is a good business to acquire assets that add significant value through expanded reach and global delivery capacities. We believe the long-term effect of such acquisitions will be to improve the operating metrics."
Investments over the years in people, processes, competencies, geographic reach, digital technologies, platforms, innovation and automation will help TechM come back on growth track and recover some of the margins after one or two quarters, he said, adding "we are confident of tackling temporary head winds, and we continue to pursue our clear long term growth strategy with confidence.