The Hindu Business Line : BT deal spells revenue visibility for Tech Mahindra

Tech Mahindra’s $350-million, five-year deal with British Telecom Global Services (BT) brings in the much needed good news for investors in the stock.

This deal is largely for provision of application support and maintenance services.

There are a couple of positives from the deal for Tech Mahindra.

This deal is structured for payment evenly spread over five years, giving sustained revenue visibility to the Indian company in an environment of global uncertainty about IT spends.

This being a volume service deal, BT has indicated that a good part of the work is to be carried out offshore from Tech Mahindra’s offices in the country.

This suggests potential for better margins from this deal.

This deal is over and above the $1 billion deal that the company had won from BT in December 2006.

A ‘repeat’ deal indicates that Tech Mahindra has been able to establish its execution capabilities with BT; helped perhaps by the fact that it is a player in the telecom vertical alone.

BT has also indicated that there may be more such ‘multi hundred million’ dollar deals in the offing.

This spells good news for Tech Mahindra, given its strong existing relationship with BT which places it well for grabbing a share of the pie. But with tier one players such as Infosys also among the BT’s vendors, one needs to be watchful on whether future deals are sliced, in keeping with the trend of vendor rationalisation by large outsourcers.

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