Tech Mahindra Share: Tech Mahindra started a transformation 6 quarters back & will continue evolving: CFO

Let’s talk about N Chandra’s commentary saying that it is a dark forecast for the year ahead. He says there are supply chain shocks like fuel and semiconductor issues, a challenging macro environment and the year is likely to see low growth and high inflation. Are you alarmed and worried about the state of things?

There are different aspects playing in macro and micro. Inflation is high in all the markets, commodity prices are soaring and from a manufacturing perspective, it has impacted different sectors differently depending on the price elasticity of the segment. From an IT perspective, we have been seeing supply side pressures for almost 12 to 18 months. That continues reflecting demand because post Covid, the demand has expanded from IT perspective.

Transformation projects have boomed across the globe, and we have benefited out of it. So, after correlating the macro commentary to micro in terms of our pipeline, projects, and the conversations that we are having with our clients around the globe, right now, we are not seeing any impact of the macro narrative. Our pipeline is still strong and new projects are still being won. Last quarter, we announced deal wins of a billion dollars and from a future outlook while the peak might be over from a demand perspective, we saw for 18 months but from an industry standpoint, we still feel that growth is going to be favourable as we look forward. It is not reflective of the gloom or doom that we are seeing in the macro side.

Post the fourth quarter, you had indicated deal wins in FY23 that could be about $4 billion. Any change in that?

We do not usually give guidance but what we have indicated last year and we kind of re-elaborated it by saying that what we typically see is that because some of these closures are cyclic in nature, the way they close deals, $700 million to a billion is the range we see trending quarterly. Based on the pipeline and timeline of deal closures, we will continue with that which was similar to last year in terms of deal wins. We do not see a change there.

The visibility usually for us is of a 12 to 18 months cycle. Right now, it looks robust but given what you have been hearing, what we have been reading we continue to have those dialogues with our customers, and we look at our pipeline data regularly to see if anything changes.

What is the outlook when it comes to the trend that you are expecting because the Street is a bit worried that the US is going to get into a recession and that is going to derail IT spends. Is that worry a little bit overdone?

It is a part of the regular customer interaction cycles. We have not seen too much of a client worry right now. There are two ways to look at it; obviously there could be short term freezes on budgets and spends where people might want to conserve given the uncertainty around it but at the same time, from an IT segment perspective, it is also an opportunity to help further offshore a lot of their processes which helps them in their cost cycle management and to efficiently focus on the core areas of their operations.

I think it is an opportunity and might give some short-term knee-jerk reaction in certain organisations which are more impacted on their margins, but we have not seen that rampant. Some start-ups, the Bay Area companies, are having a little bit more reactive changes versus the others who are maintaining the status quo and doing more projects right now.

Four quarters in a row, given that the USD growth has been over 4%, is that a reasonable expectation for FY23?

What we said about our earnings last time is that for the coming year, when we look at our businesses, 40% of our businesses are in telecom and the telecom cycle is favourable with the 5G wave. So, 5G being the tailwind, with 40% business and some of the enterprise verticals, that is where we see our growth potentials and the pipeline. The deal closure is favourable. Overall from a business perspective, we are looking at a double-digit growth for this year. That is all we had articulated because we avoid giving specific guidance.

Going forward, what are the attrition rates or the trends so far for Q1?

I can indicate how things are moving. If one looks at the last two quarters and correlate to it, we had seen our quarter ending attrition numbers improve. So, the cycle which was moving upwards from an attrition percentage standpoint started to plateau and then come down. But as I mentioned, the supply market is still tight.

There is demand for digital and niche skills, data analytics, cyber security and all these are in heavy demand. Yet we continue to see a tight cycle in the market. Attrition will hover around an elevated level in the next couple of quarters before maybe in the second half of next year, we will start bottoming out as we look forward.

As we look ahead, what is giving you sleepless nights, what is your big, key concern going forward?

Right now, the newspaper headlines. The macro environment is laid out by a lot of people and some of the top CEOs of multinational banks and investment banks are calling out gloomy headlines. That is obviously a sign of worry but we stick to the fundamentals. We try to stick with the basics which is where our 1,000 customers are, where are they spending, what are we doing to help them better improve their margins and operating profile. We continue that dialogue with them on a regular basis by staying close to them because that is what matters, that is ultimately what will finally reflect in the numbers as we move forward.

Internally, we started a transformation in the company around six quarters back on various aspects, including delivery and process transformation. We will continue evolving on that because that anyway we were working on. In the current environment, we would not stop there. From our perspective, making sure that we focus on our customers and continue to derive value for them, is what we try to do.