Following sister company Mahindra Satyam’s improving performance this week (see Mahindra Satyam improving fortunes), telecoms focused offshore provider Tech Mahindra reported healthy growth in both revenues and profitability in Q112. For the three months ended 30 June, revenue grew 15.4% is US Dollars to $289.8m and up 4.1% on the previous quarter - although on a constant currency basis, revenue was up 2% quarter on quarter to $284.1m. EBITDA operating profit, was up 16.6% to $54.1m (18.7% margin - essentially flat on Q111, although this was down from 21% in the previous quarter). Wage increases implemented on 1 July mean that margins in Q2 are likely to be lower.
Tech Mahindra grew headcount rapidly during the quarter – it added c10% to its total headcount in the quarter, taking on some 4,517 people, and bringing its total number of employees to 42,850. Most of these recruits (almost 3,000 in fact) were in BPO, which brings its total BPO headcount to one third of its workforce.
According to CEO Vineet Nayyar, this was to back fill gaps left by attrition and also staff up on its major BPO contract in Africa. This is a customer service BPO deal with Bharti Airtel covering seven countries, which it announced in June. Tech Mahindra also announced that its new headquarters for its African BPO operations would be in Gabon, Nigeria. This may seem the unlikeliest of places. However Tech Mahindra has apparently established a 1,000 person strong presence in Nigeria over the past two years through deals with operators like MTN and Multilinks. Nayyar says it now has 2,000 people being trained in the region.
There are some risks ahead. Nayyar said that Tech Mahindra’s largest customer BT has “decided to put significant pieces of business out to tender”, and admitted, “you win some and you lose some". Late last year BT reduced its holding in Tech Mahindra to 24% (see here), so in many ways increased competition for future work was inevitable. However Tech Mahindra badly needs BT’s business, since it still accounts for 40% of its total revenue. Losing any of that valuable revenue stream could make its merger with Mahindra Satyam, scheduled for Q32012 (see here), an even more challenging prospect.