'Merger with Tech Mahindra likely next year'

Almost two-and-a-half years after acquiring the information technology consulting and outsourcing company Mahindra Satyam, its parent, Tech Mahindra, is still trying to resolve certain issues in the US and back home.

After announcing the second quarter results, Chairman Vineet Nayyar, Chief Executive C P Gurnani and Chief Financial Officer Vasant Krishnan share their views.

Can you give us a breakup of revenues in terms of sectors and geographies?

Krishnan: Manufacturing as a vertical is around 30-32 per #162 technology, media and entertainment is around 20 per #162 BFSI (banking, financial services and insurance) is 20 per #162 retail, travel, logistics, healthcare and emerging verticals make up the balance.

Is there any contraction on the margins?

Krishnan: It is not significant compared to the last quarter. It was 15.7 per cent at the net level last quarter. Now, it is at 15.1.

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Do you see any pressure on the margins and need for negotiating on pricing?

Gurnani: From the pricing side, there is no pressure. The company is actively investing in centres of excellence.

Also, at times, there are some milestone projects that we work on. So, there are some marginal adjustments, which we always have to do.

Krishnan: We don't see any margin contraction. If you look at this quarter, at revenue minus personal cost level, we have actually improved. Personal costs as a percentage of revenue was 71 per cent and this quarter its 67 per cent.

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When will the merger of Mahindra Satyam and Tech Mahindra take place?

Nayyar: We indicated two-and-a-half years ago, when we acquired Satyam, that it is our intention to merge. That intention still remains.

It is a process and we are looking at when to commence it. We are hoping this integration of amalgamation should take place sometime in the later half of next year.

About new logos?

Gurnani: We won 36 new logos (new customers) in the quarter, across various sectors, but our wins have been predominantly in enterprise mobility and smart grid. The contract pipeline for large deals is improving significantly.

The good news is the traction is coming from across sectors. Our business intelligence and analytics group has been very active and they have signed a fair amount of new logos.

Similarly, on enterprise mobility, that obviously is an area where we are doing a lot of new projects.This quarter, we are focusing more on M2M – machine-to-machine, mobile-to-mobile, machine-to-mobile. But the question is there are a lot of connected devices and we are focusing on that.

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Can you give us some details about the pending US SEC cases and when do you see a possible solution.

Nayyar: That issue has been resolved. We have agreed to delist and the process is on. It will be completed by end of February.

On the class-action cases in the US, the federal court judge had accepted the settlement, and orders to that extent had been passed. But one case related to Abardeen, a particular investment fund, is on. And we will see how it turns out.

How many payment obligations do you have at present?

Nayyar: About $125 million for class-action, $70 million for Upaid and $10 million for SEC have been paid.

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The impact of the rupee devaluation. How much has that impacted the margins and earnings during the last quarter?

Krishnan: On a dollar basis, we grew 4.5 per cent because of the fact that there was a cross-currency. On the rupee perspective, we gained around little less than five per cent. There was no margin contraction.

What has been the salary hike (in October). What is your bench size and is it a reason for delaying induction of new campus recruits?

Gurnani: It's (salary hike) 12 per cent offshore and 2.5 per cent onsite. Our utilisation is running at 74-75 per cent. So if a company, which is in a growth mode, and is running its utilisation of 75 per cent, bench is not an issue.

The reason for delay is because the market is getting into a specialist mode. If the market gets into a specialist mode, then you don't want to bring in freshers and then not getting them properly utilised.

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What is your future hedging strategy?

Krishnan: Nobody expected the kind of depreciation that the rupee had in the month of September. We are continuing to monitor this quite closely.

We are keeping a close watch. It (rupee) is always volatile and so we are always cautious. In terms exposure, we are more exposed in the near-term than in the long-term.

At what stage is your battle with the Income Tax department that you are currently waging?

Nayyar: Our statements have been very very open. We believe that the demand on that fictious income is unreasonable. At this stage, I can only say that it is sub judice and we are currently presenting ourselves. I don't see this dialogue (with I-T department) getting resolved pretty easily.