Tech Mahindra sees ‘first signs of revival’ as BT turns the screw

(By Anthony Miller – Wednesday 22nd July 2009 5:15pm). Though top client (and shareholder) BT’s contribution to Tech Mahindra’s $228m Q1 ’10 revenues remained flat at 52% , this belied an unspecified decline in the core services Tech Mahindra provides to BT. It was only the recent new megadeals that kept BT revenues – which we estimate at between £75-80m in the quarter – stable. Tech Mahindra executive vice-chairman Vineet Nayar said that all the India-based players serving BT are seeing a drop in their revenues, as does indeed seem the case. We estimate that Infosys, for whom BT is also its largest client, saw revenues from BT drop 27% from £45m in Q409 to £33m last quarter. BT comprises about a third of Infosys’ UK revenues. And it sounds like BT is not going to increase spending with the India-based players any time soon, with no major IT projects on the horizon and pricing under pressure. So when Nayar referred to seeing “the first signs of revival” in the marketplace, we presume he wasn’t talking about BT! Nonetheless, he hedged his bets a bit, remaining ‘cautious’ and wanted to see another couple of ‘good’ quarters pass before he was prepared to call a trend. In any event, unlike larger peers, Tech Mahindra’s operating margins declined, both yoy and seq, to 25.5%, but they remain second only to Infosys.

On the Satyam – sorry, Mahindra Satyam – front, the news sounds positive. New CEO C.P. Gurnani told me that there had been no customer attrition since Tech Mahindra took control in April and that they had been winning new customers – 20 in fact, of which some 8 or 9 came from UK/Europe. Gurnani talked about Mahindra Satyam having “touched the bottom”, but set an expectation that revenues, when eventually reported, might come in a little under the $1.3b mooted at the time of the takeover. Gurnani also said that pricing was pretty much in line with Mahindra Satyam’s peers, with onsite prices even better due to Satyam’s traditional high exposure to enterprise application services (SAP, Oracle and all that). They are still hoping to have the restatement of Satyam’s accounts completed by the end of this year, then hopefully we’ll get better disclosure on the business. It will surely be good to see Mahindra Satyam ‘out of the closet’ again.