Tech Mahindra's journey with Satyam so far

While the acquisition helped Tech Mahindra add $1.2 billion to its top line, it took almost eight quarters to do so; the company also spent around $200 million in legal fees. 

There are several ways to figure whether the acquisition of Satyam Computer Services by Tech Mahindra in 2009 has been successful. One is to look at the company’s position in India’s information technology pecking order.  

From ninth position in 2009-2010, Tech Mahindra jumped to number six in 2011-12 and has remained there, according to Nasscom. These rankings include the Nasdaq-listed Cognizant.  

This would be one parameter. For Tech Mahindra, the acquisition brought several things it aspired to have to enter the big league. More than the $1-billion tag. 

Financial journey

One of obvious benefit of the acquisition was the $1.2-billion addition to the top line of Tech Mahindra. It took almost eight quarters to do this.

Tech Mahindra lost a good year to two in resolving several uncertainties surrounding the acquisition. This also meant spending around $200 million in legal fees for several lawsuits.

 “It has been a tough journey. If not for the acquisition of Satyam, Tech Mahindra would have continued to be a mid-sized services provider. Scale does give you an advantage in IT services. 

More, the IT services market has reached a certain stage. For a company to now enter and make a mark in the same genre is difficult.

The wave of opportunity that took Indian IT service providers with it is over.

This acquisition gave them scale and also capabilities in ERP (enterprise resource planning) and infrastructure management for non-telecom clients,” said Yugal Joshi, practice director, Everest Group, a research and consulting firm.  

In terms of top line growth from 11.8 per cent for 2010-11, Tech Mahindra reported a rise of 132.11 per cent in 2011-12.

Though the acquisition was done in 2009, due to the legal process and several legal suits, Mahindra Satyam (the erstwhile Satyam Computer Services) reported its financial numbers for the first time in November 2010.

Tech Mahindra started to issue consolidated numbers from 2011-12, though those for 2011-12 and 2012-13 are not audited.  

The real picture of the merged entity emerges in 2013-14. A 30.3 per cent growth in top line was the highest among the top players. In dollar terms, growth was 17.7 per cent.  

Even so, the years lost in sorting the Satyam conundrum meant the revenue gap with top players widened. Likewise for profits, skill sets and intellectual property.  

For instance, Tata Consultancy Services (TCS)’s revenue for the 2013-14 was $13.4 billion, Infosys clocked $8.25 billion, Wipro $6.6 billion and HCL Technologies $5.3 billion. Tech Mahindra’s revenue for 2013-14 was $3.1 billion.  

After Satyam, Tech Mahindra also started to focus on acquisitions. It acquired six companies, each adding to the top line.  

Diversified portfolio

The other big advantage the Satyam acquisition provided Tech Mahindra was a diversified portfolio and entry into new markets.

Tech Mahindra was primarily a telecom-focused firm.

It now has access to verticals such as financial services, retail, logistics and transport, health care, and life sciences.  

Tech Mahindra was also able to broaden its operations from Europe to North America. It is among the few Indian IT firms that does not have an overdependence on the US market.

At the end of 2013-14, revenue contribution from the US was 45 per cent, Europe 32 per cent and the rest of the world 23 per cent.  

Importantly, the acquisition also allowed Tech Mahindra to reduce its dependency on BT (former British Telecom), which had contributed almost 41 per cent of its revenue in the fourth quarter of 2010-11.

Telecom baggage

Sudin Apte, research director and chief executive officer of Offshore Insights, who has tracked Tech Mahindra from the time it acquired Satyam, believes the acquisition was a missed opportunity.

“All the other acquisitions have been telecom-focused. The non-telecom piece has not grown that much,” he added.

According to the data shared by Offshore Insights, over the past four quarters, Tech Mahindra’s non-telecom practices struggled and pulled growth down.

The quarterly revenue rate of telecom jumped from $372 million to $468 million. In the same period, non-telecom revenue grew only by $13 million, from $419 million to $432 million.

“As a result, the percentage share from non-telecom practices dropped from 53 per cent in December 2013 to 48 per cent in the latest quarter reported,” said Apte.

Joshi of Everest agrees. “I would still wait before terming Tech Mahindra’s journey into full IT services as successful. They still need to build capabilities to tap into large segments like financial services and fast-growing segments like health care.

Financial services clients are the largest spenders on IT services, with a total share of around 25 per cent. If you cannot cater meaningfully to that segment, it becomes difficult to grow the business,” he said.

Image: Anand Mahindra, chairman of Tech Mahindra, speaks during a news conference in Hyderabad

Photograph: Krishnendu Halder/Reuters