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$1 billion Tech Mahindra wins landmark order news
Rex Mathew
22 December 2006
Tech Mahindra, the technology services arm of the Mahindra group, has won the first ever $1-billion outsourcing order by an Indian company. The Pune-based company has achieved what the large Indian IT services companies have been unable to do so far.

The order is a further confirmation that Indian companies have the capability to win large outsourcing deals, which regularly went to global companies like IBM, Accenture and EDS till last year.

Till now, the single largest outsourcing deal by an Indian company was the $850-million deal by TCS with UK-based Pearl Group. HCL Technologies had earlier won a $200-million order from Skandia and a $330-million deal from DSG group. TCS, Infosys and Patni had won parts of a large outsourcing order from ABN Amro.

The 5-year order is from UK-based $36-billion telecom major British Telecom (BT) for providing internal IT support and managing BT''s managed services accounts with business customers. Tech Mahindra will support BT''s planned growth of managed services to business customers around the globe and continue to provide ongoing services related to BT''''s internal systems, processes and re-usable platforms. Tech Mahindra may hire up to 4,000 employees over the contract period to execute the order.

On the flip side, the order increases Tech Mahindra''s dependence on BT. The dependence was as high as 83 per cent of total revenues during the first quarter of 04-05, but was brought down to 64 per cent for the quarter ended 30 September, 2006.

This percentage would rise again in the coming quarters as the company starts work under the order. During the last reporting quarter, top-5 clients contributed 82 per cent of revenues while top-10 clients contributed 90 per cent of revenues.

Incidentally, BT was one of the co-promoters of Tech Mahindra, earlier known as Mahindra BT. As on 30 September, 2006, BT held a 32.55 per cent stake in the company, auto major Mahindra & Mahindra owned 46.41 per cent while a group company held 8.57 per cent.

Tech Mahindra expects overall revenues to increase between 20 to 25 per cent during the first year, from the order. However, overall margins would be under pressure during the first year. Both companies will work together on creating and operating a global delivery organisation, by leveraging and augmenting Tech Mahindra''s existing delivery centres to achieve greater flexibility and efficiencies in addressing client requirements, according to a statement issued by Tech Mahindra.

"This is another example of BT sourcing the best skills around the world to deliver outstanding service and value for our customers whilst contributing further to continued operational efficiencies", said Hanif Lalani, BT''s group finance director.

"We are proud to be BT''s preferred partner for its internal IT requirements and this new opportunity will enable us to assist BT serve their external customers even more effectively. We feel privileged that BT has selected us for this opportunity and takes our long standing relationship to a new level", Vineet Nayyar, vice chairman and managing director of Tech Mahindra said.

Tech Mahindra''s IPO was subscribed over 70 times and is one of the best performing IPOs this year. Issued at Rs365 in August this year, the stock has surged to over Rs1,600 now. After a very good listing, the initial surge was after the company announced second quarter results, which were way above expectations. From around Rs600 levels, the stock price nearly doubled within a couple of weeks. The new order has led to a fresh upsurge and the stock has gained more than 30 per cent over the last 2 sessions to a new lifetime high.

 

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$1 billion Tech Mahindra wins landmark order