Anand Mahindra on plans for Tech Mahindra

The management of Tech Mahindra says that business with British Telecom will grow, but the proportion will come down. They say that they don't see a slowdown in IT spending by telecom companies. Also, they say that the Motorola JV will create a platform for mobile content.

Excerpts from CNBC-TV18's exclusive interview with Anand Mahindra, vice chariman and managing director, Mahindra and Mahindra; and Vineet Nayyar, CEO, Tech Mahindra:

I just heard you at the presentation a while back pre-listing that you were on the threshold of making new promises today. Could you start by making a few promises to shareholders on what kind of growth you expect this year and next year?

Mahindra: I am going to repeat the same promises I made, which are going to be as abstract as they were in the morning. There is a great new team personified and led by Vineet Nayyar, and his new team lieutenants C P Gurrnani and Sanjay Karla.

They have promised to ensure that the market recognises that we are really a tier I software company. That is as far as I will go as making any predictions, but I assure you that is the promise we are going to keep.

Could you just give us a broader guidance of what kind of growth you are seeing in that telecom vertical? Could leave us with a ballpark kind of growth number that you see for the next couple of years for the company without getting into the specific EPS estimate?

Nayyar: I could tell you about how the industry is likely to grow. I would not wish to make any predictions as to how we would grow. The only prediction I would make is that we will endeavour to meet the expectations of the market. We have had an overwhelming response, it has created an element of expectations, and we will endeavour to meet them.

How much do you expect to bring revenues from BT down to, and in terms of your attrition rates, do you have a target on how much you would like to shorten that by?

Nayyar: As far as proportion of business from BT is concerned, it is coming down, but we have always argued that BT really is not one company. These are four separate companies with separate objectives and separate targets. We have been working with three companies, and we now want to work with the fourth. I do believe that in absolute terms, our business with BT will grow. I do believe that the proportion will come down because businesses from other areas will grow at a faster pace.

To your other point as to whether telecom kind of places a restriction or a ceiling on us, all I would say is to please look at the business numbers of the telecom industry, both in the equipment manufacturers space and also in the service provider space.

The market is close to $60 billion as against which the telecom industry in India is getting only about $1.7 billion. So we have huge headroom. Second, please recognise that the concept of telecom has changed, the definition of telecom has changed. It now includes media, it includes content, and it includes a host of other things which are coming in. So I think there is enough headroom for us to play and grow still.

Mahindra: I think I will just add to that. Rather than speak about how the proportion of BT business is going to go down, I think we should be talking about how the proportion of non-BT business will go up. That is the real future of Tech Mahindra. I think BT remains committed to Tech Mahindra, infact their confidence in the capabilities and the competencies with Tech Mahindra grows everyday. So I think it would be more appropriate to speak in terms of the growth of other clients.

Having said that, I think the one risk which people associate Mahindra Tech with is the large proportion of revenues, which comes from BT and the very large proportion, which comes from telecom verticals. Could you tell your shareholders, how and whether you see that changing significantly over the next one-two years?

Mahindra: As I mentioned and as Vineet said, in absolute terms we expect BT to infact grow its business with us. We are very sanguine about the growth of other clients. As you know, we have some very major clients; the largest telecommunications company in the world, AT&T, is a major client and a growing client. Hence, as a proportion, clearly we expect to see other clients growing in a significant manner to the point where the market is going to recognize this in a very short while.

From a broader perspective, there have been concerns in terms of a slowdown in global spending. Is that something you expect to see at all in the industry or in terms of appetite or the sort of client addition you hope to see in the next few quarters?

Mahindra: We don't actually see a slowdown; the fact is that the telecommunication industry remains one of the fastest growing in the world, particularly the Indian telecommunication industry. There is huge opportunity everywhere, and as Vineet said and I am going to repeat, the definition of communication is changing dramatically.

We are very well poised to capitalize on that transformation. As you know, we recently announced the joint venture with Motorola called CanvasM, which is creating a technology platform to address mobile content, so there are huge opportunities.

When the board decided to focus on this space, it did so for two reasons: one is that there is a very clear objective and a strategic alignment that comes when you say that you are going to focus on one segment of the industry, and our goal becomes extremely clear when we say we want to become the number one telecommunication solutions provider in the world. I think those are the promises that I referred to earlier, I think the market is going to cooperate; I don't see any problem in the external market being an obstacle to achieving that target.

Nayyar: To the question of a slowdown, I will just draw your attention to one fact. Over the last 2-3 years the most rapidly growing sector for all IT companies has been the telecom sector. This is because technology is changing, which requires larger inputs from us, and also because the definition of telecom has changed. So we don't see that as a restriction.

This morning Uday Kotak compared your company to Infosys and a few other very large companies. How do you compare your company in terms of all the operational metrics that you study for Mahindra Tech with industry leaders like TCS and Infosys?

Mahindra: Benchmarking is an ongoing exercise in any company that aspires for leadership. As a board, we drive Vineet and his team very hard; though he is looking very healthy right now, most days he looks ragged from the pressure we put on him. But the fact is yes, we do benchmark, but we are benchmarking with the best in the world.

As far as we are concerned, we are already leaders in the telecommunication space in India. Leaders don't look behind, they don't look to the side; they look ahead. So as far as I am concerned we are looking to be the best telecommunication service provider in the world. We have been recognized by major agencies in the world as being amongst the top and we are ranked with the best in the world. So we benchmark not just with our peers here, but we benchmark with the best in the world.