Tuesday, 20 October 2009

Tech Mahindra hits BT watershed

(By Anthony Miller – Tuesday 20th October 2009 2:30pm). For the first time ever, less than 50% of Indian-based Tech Mahindra’s revenues were derived from top client – and 31% shareholder – BT. But only just. At 49.8% of Tech Mahindra’s Q2 10 revenues (to 30th Sep.) BT spent about £72m with Tech Mahindra in the quarter, down 17% yoy and 6% lower than the prior quarter (in £s). Nonetheless, this is still more than double the £32m we estimate BT spent with Infosys, for whom the UK telco is also its largest client. BT has cut its spending with all its key IT services suppliers, though remains a significant client for many of the major India-based players.

Beyond BT, Tech Mahindra Vice Chairman Vineet Nayyar talked about “a global recovery at least in sentiment”, saying that they saw “definite signs of revival” in the business. Tech Mahindra was responding to more RFPs than in the past few quarters though Nayyar was still cautious as to when any of these would turn into orders. Indeed, he commented that customer decision-making has not gained pace. Like most players, Tech Mahindra has dropped prices in exchange for committed business. They have negotiated such a deal with BT, wrapping together a couple of its core contracts in order to “assure volumes” though at a discounted price.

Not much news on the Mahindra Satyam front – indeed, management seemed to take umbrage that I even dared ask the question on the concall! The restatement of Satyam’s accounts is still “another four or five months” off, but meanwhile they say customer attrition has stopped and they are winning new clients. I still believe this was not a marriage made in heaven and I really get the feeling that Tech Mahindra management sees Satyam as ‘something that’s happening over there somewhere’, which hardly inspires confidence. Given that Mahindra Satyam is likely similar in size – perhaps even bigger – than Tech Mahindra’s ‘core’ business, you’d think management would have a little more to say!

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