Govt delays payments; IT contracts are one-sided: Tech Mahindra

Tech Mahindra, the fifth largest IT exporter, is treading cautiously on the domestic turf, especially in hunting for government contracts, as it sees implementation a "grave risk" in this area.

"Tech Mahindra clearly believes there is an opportunity in the country, but there is a grave risk that the government departments entail on the implementation side," company's Managing Director and Chief Executive CP Gurnani told PTI.

Listing his specific concerns, Gurnani said government gives a "short end" to IT companies when it comes to cash flows, as payments do not come as per schedule and even after completion of the work; more over the contracts are "one-sided".

Additionally, with an increasing bulk of business coming in from government, which has announced the 'Digital India' initiative, there is also a concern about leadership changes at the client side because of the frequent transfers of bureaucrats, he said.

Observing that there is a slew of opportunities like smart city initiative with port management and mobile healthcare, where having smart homes is a necessity, Gurnani said that a surge in data revenues being experienced by telecom players also point towards the same.

The company, which reported a handsome jump on a sequential basis in the September quarter net at Rs 720 crore (Rs 7.2 billion), has been witnessing a de-growth in revenue from its domestic business in the past two quarters, Gurnani said.

It can be noted that this is in contrast to its larger rival TCS' bullishness about the domestic opportunity, following a spike in its revenues.

After releasing its results, the TCS management had said that its domestic revenue has turned around after many quarters of sluggishness and now accounts for 8 per cent of the overall revenue.

On the overall business trajectory, Gurnani said there will be a "substantial increase in capital expenditure, which was Rs 234.5 crore (Rs 2.35 billion) for the September quarter, in the next few quarters as it invests more in upcoming opportunities worldwide."

Among the areas that will see more ploughing of resources will be products, new markets and creating delivery capabilities, he said.

On the margins, which increased to nearly 20 per cent in Q2, Gurnani said there is a more headroom to grow, given the lower utilisation rates in early 70s.

"There is a clear desire to improve the margins, we have the operating levers to do so," he said, but refused to share a targeted level the company is looking at.