Tech Mahindra reported a 3.3% year-on-year rise in revenue to ₹9,372 crore for the quarter ended September and also saw a 5.4% growth in profit before tax to ₹1,409.3 crore. Dwelling on the cost savings that the company had been able to achieve, MD and CEO C.P. Gurnani also spoke about why clients prefer large system integrators. Excerpts:
There was a phase when U.S. clients seemed to prefer boutique firms or vendors with a local presence. Has that changed?
People may have preferred a local boutique firm because they may have wanted to work and experiment together. “Oh, the colour black is not good. Let’s experiment with blue. If blue is not good, let’s do green together.” The visual part of digital drove the local participation.
Now, projects are getting larger. It is no longer one launch and programme. You need a lot more capability. Take cybersecurity. In a new application, I would bring in cybersecurity from day zero. My earlier experience was a human will make an error, always open a phishing file, or bring in a new device, or change the policy on his computer. I had to visualise all of these scenarios, and still my application had to be efficient and secure.
Larger [client] firms realise that a larger system integrator, or a larger player will be able to give them an end-to-end service. And, we also became smarter. We bought companies like Mad*Pow and The Born Group. They were digital natives. They were always locally available to clients. And, we retained their identity and character.
What has changed permanently due to the pandemic for the IT services industry?
What has changed forever is probably the acceleration of the work-from-home trend. The focus on cybersecurity has increased. Earlier, for example, if you were managing 25 data centres, you knew your network, you knew where to put in firewalls... Now you have to manage hundreds and thousands of vulnerabilities remotely. Hence, your risk management process has changed. Similarly, learning from home has accelerated. Now, it doesn’t matter whether it is upskilling-as-a-service like what Tech Mahindra does or if it is education. Three, healthcare has changed, including life sciences that leverage artificial intelligence-driven vaccine development, medical services including hospital activity, and the like.
Very few companies have a URL detailing past acquisitions, year by year, like your website does. What do you look for in acquisitions?
We don’t go by large or small size. We have always articulated that M&A is a critical part of our strategy. Our areas of interest are engineering services, digital and certain SaaS products.
Technology customers are said to be cutting their flab. Will there be new zest for offshoring?
There isn’t any fresh impetus to offshoring as a lever. But at the same time, we have noticed our clients looking at more of business than only IT transformation.
That is why you would see a more cloud-centric wave. A client migrates to the cloud because to him or her, it doesn’t matter where the data centre is. And also, by experimentation, they have realised the cloud is more secure than his own data centre. Clients are talking about driving their own customer experience.
Has COVID-19 offered the Indian IT industry another Y2k-like opportunity to get a foot in the door for new kinds of services?
If the Time magazine had wanted a chief digital officer as Man of the Year for 2020, COVID-19 would be the choice, not a human. Now, does that mean it’s a Y2k moment? No. Because the pandemic offered us no fixed timeline for anything.
Y2k was clearly a time bomb. ‘If you don’t fix this quaint tissue, you could be shutting down your organisation within a certain date.’ [It’s different now.] I put it in three buckets: run, change and grow. To run their operations, people had no choice. All of us had to figure out methods overnight because the lockdowns were forced on us. There was no advance warning for any given situation. So, we all improvised, working from home; we set up a central command centre and implemented cybersecurity policies that dare not be breached by our users.
In Q2, TechM has shown a margin improvement and a higher PBT y-o-y. Where has this come from?
Tech Mahindra’s subcontracting cost was high during April-June due to the acquisition of Cerium and Zen3.
In Q2, there was a reduction in subcontracting cost. Improvements were of the order 410 basis points (bps) in EBIT margins of which cost management, including offshoring, utilisation, reductions in subcontractors contributed 160 bps.
Earlier, if the growth we planned for did not happen, we had to deal with costs. We used this pandemic to resolve this equation once and for all. We redid the equation of subcontractors’ growth [linked to] profitability and brought in some very stringent controls on subcontractor hiring. We started using artificial intelligence-based tools to populate our operations dashboards. The result is I have far fewer subcontractors, [though] we have about 13% of our revenue coming from subcontractors. Two, we are no longer creating capacity without letting it go through a rule engine that uses data science to allocate resources very efficiently. The consequence is my growth, my hiring, capability building and skilling are more predictable.
