CIO budgets may remain flat: Vineet Nayyar & CP Gurnani

India’s fifth largest information technology services company Tech Mahindra reported in-line numbers for the December 2014 quarter. The company’s deal pipeline remains healthy and it believes client budgets will remain flat this year. Sheetal Agarwal spoke to Vineet Nayyar, executive vice-chairman, and CP Gurnani, managing director and chief executive officer, at Tech Mahindra. Edited Excerpts:

What are your readings on client budgets for this year?

CP Gurnani: Different sectors have different momentum and velocity. Public sector spending, for instance, is down almost all over the world and that puts a pressure on the rest of the economy also. Many governments have chosen austerity as a way of addressing some of their deficits. At the same time, new businesses such as Flipkart or Snapdeal create enough velocity in the market to counterbalance some of the other slowdowns. In today’s environment it’s no longer about healthcare it’s also about remote medicine, telemedicine, it is about remote diagnostics. Now that does not get accounted for in any IT budget. So, my personal take is spends on technology are increasing while CIO budgets may be flat. The pressure is to do more technology, which does not mean more IT only.

Ebitda margin gains were lower than expected in the December quarter. What is your outlook and what are key levers of this metric?

CP Gurnani: We have always maintained that we have to balance between growth, incremental investments in new
technology and margins. Also, some of our recent acquisitions such as LCC, which is a $430 million revenue acquisition but it is also an 8.5 per cent Ebitda company. Similarly, Sofgen is also a relatively lower margin company. Now any turnaround or transformation to Ebitda margin is going to take time. Meanwhile, in my current business there is a lot more to be done, particularly around efficiency, automation platforms, and to increase utilisation. We will continue to work on those areas.

Tech Mahindra has been talking about automation. Does this mean that hiring numbers will gradually become irrelevant?

Vineet Nayyar: The intensity of individual use will come down but as I said earlier the slice of the pie may get thin but the pie itself is becoming bigger.

So it does not mean necessarily that you will see reduction in use of people. Instead, each individual will be required to do more and cover a larger span of work because there is an element of automation.

CP Gurnani: The digital economy necessarily means that you understand the business, you are able to analyse, you are able to look at the process and you are able to also apply the right technology. The requirement for all-rounders is increasing. That is where the shift in our own skill development has to take place. We encourage certification but it has to be balanced by the individuals’ willingness to change as fast.

You remain optimistic on the growth potential of the European markets. Which geographies will drive this growth?

Vineet Nayyar: Europe is going to be a good play area going forward. Italy, France, Germany and the UK should do very well.

What has led to higher attrition in this quarter?

CP Gurnani: Yes, attrition has inched up sequentially from 18 per cent to 19 per cent.

But remember, this quarter witnessed appraisals and some expectations were not met. Hence the attrition number has seen an uptick.

SpiceJet board clears raising of Rs 1,500 cr as Marans alight

Furthering the revival of the troubled SpiceJet, the board of directors of the airline has approved raising of Rs 1,500 crore through issuance of fresh securities. The board has also approved the transfer of Maran family’s entire 58.46% existing stake, worth around Rs 700 crore at the current market price, to co-founder Ajay Singh.
The airline, which has been facing rough weather, will also get around Rs 375 crore from the Marans in lieu of the non-convertible preference shares to be allotted to them despite their offloading the entire equity stake in favour of Singh. Paving the way for Ajay Singh to take control of SpiceJet, Kalanithi Maran, his wife Kavery Kalanithi and managing director S Natrajhen have resigned from the board.
While the pricing details with regard to the share transfer by Marans were not disclosed, sources said Singh might infuse fresh funds into the carrier and bring in some foreign investors, as was reported sometime ago. The board, in a meeting on Thursday, also approved changing the airline’s registered office from Tamil Nadu to Delhi. The company’s Articles of Association would also be amended.
According to a regulatory filing by SpiceJet, the embattled airline will issue up to 37.5 lakh non-convertible cumulative redeemable preference shares of Rs 1,000 apiece to Kalanithi Maran or Kal Airways, or both.
SpiceJet said its board of directors has taken on record the share sale and purchase agreement between the company, Kalanithi Maran, Kal Airways and Ajay Singh. Besides, the board has cleared a proposal to issue equity shares/warrants and/or any instrument convertible into equity shares whether optionally or otherwise/global depository receipts (GDRs)/American depository receipts (ADRs)/foreign currency convertible bonds (FCCBs) for an aggregate amount not exceeding Rs 1,500 crore or equivalent currencies to any person or persons, whether or not shareholder of the company.
The company’s authorised share capital would be increased to Rs 2,000 crore. This would be divided into 150 crore equity shares of Rs 10 each and 50 lakh non-convertible cumulative redeemable preference shares Rs 1,000 each. SpiceJet would seek shareholders’ nod through a postal ballot for all these proposals.
SpiceJet had last week got the civil aviation ministry’s approval for its reconstruction and revival plan. Following a board meeting, SpiceJet had on January 15 submitted a revival plan proposing transfer of Kalanithi Maran’s promoter stake as well as management control to the airline’s co-founder Ajay Singh.
In further impetus to the revival plan, the Directorate General of Civil Aviation (DGCA) had lifted a ban on advance seat bookings by SpiceJet. Kalanithi Maran, chairman and managing director of the media conglomerate Sun Group, had in 2010 paid Rs 750 crore to buy 38% in SpiceJet from American PE investor Wilbur Ross and the UK-based Kansagra family.

Tata Power to buy Nelco’s biz vertical for over Rs 8 crore

Tata Power will acquire group firm Nelco’s defence business of Unattended Ground Sensors (UGS) for about Rs 8.3 crore.
For the “slump sale basis” deal, Tata Power has entered into a “binding understanding” with Nelco.
In a regulatory filing, the power utility said the consideration would be around Rs 8.3 crore.
“The UGS business involves supply, installation and servicing of sensors for the Ministry of Defence. After purchase, the UGS business would be housed in Tata Power’s strategic engineering division, which is also a supplier of defence equipment and solutions. Acquisition of the UGS business will provide synergies to the existing business of Tata Power SED and has scope for growth and expansion,” the filing said.
“The takeover of Nelco’s UGS business segment further enhances our presence in the defence segment and provides synergy and alignment in servicing the customers,” it noted.
The transfer of the business is subject to approvals and consent of Defence authorities.