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BL Research Bureau

The strong deal flow from British Telecom continues for Tech Mahindra, with the announcement of a $700-million, five-year deal between the two companies. Tech Mahindra’s management has indicated greater focus on long- term and large deal sizes and this win falls fully into such an ambit.

In a rough macro-environment and with the company’s single vertical focus, this deal provides long-term revenue visibility for Tech Mahindra. The flip side though could be that it increases revenue concentration from its top client. However, the length and size of this engagement mitigate risks on this score.

The time-lines when the revenues related to this deal would start to come in as well as the fate of the payment made for this is still awaited. Tech Mahindra had to cough up a $110-million upfront payment for exclusive negotiations with BT in the March quarter, causing a big dent on profitability.

In the past 18 months, three large deals have been won by Tech Mahindra from BT.

The ramp-down in telecom vertical revenues for players such as Infosys, offered cues that Tech Mahindra stood a strong chance of latching on to this opportunity. The company has been able to expand, albeit slowly, thanks to contribution from non-BT clients with increasing engagements with clients such as AT&T.

The stock, which took a knock after the net loss announced last quarter, has since reversed and was up 9.6 per cent on Tuesday after the company announced a better-than-expected set of numbers in the June quarter. It reported a 9.2 per cent growth in revenues and good profitability numbers sequentially.

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