CIO budgets may remain flat: Vineet Nayyar & CP Gurnani

Vineet Nayyar and CP GurnaniIndia’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.