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Tech Mahindra - A few sharp turns to glory

Tech Mahindra's journey to become India's fifth-largest IT services company, and the largest company by market capitalisation in the Mahindra fold, was anything but simple. Its genesis lay in the Mahindra Group and British Telecom's (BT) desire to become a telecom operator for the industrial sector in India in the mid-eighties with a JV named Mahindra Telecom, later renamed Mahindra British Telecom (MBT). When a delay in liberalisation of the telecom sector put a spoke in that wheel, the company started working for British Telecom providing software development services to BT in the United Kingdom (UK).

It started with taking on the services work that BT did for its large MNC clients, the low-end jobs were passed on to MBT, and the company would train its engineers in Mumbai and send them over to handle these jobs. The next step was the move to the offshore model.

Mahindra British Telecom was formed in 1986

Bharat Doshi, former Group CFO of Mahindra says, "Mahindra British Telecom (MBT) started with body shopping in the late 1980s. The JV's job was to hire 200 people and send them over to British Telecom and earn a margin. It was cost-effective for BT; it was a profit for MBT. Then MBT changed the business model to a completely offshore, project-based model. BT actually gave the JV a challenge that only 10% of MBT's people should be on-site in the UK, and the rest should be offshore, and JV accepted the challenge."

Such challenges, innovations and adaptability continue to be the credo of the company even today. At the recent annual general meeting of the company in July, Chairman Anand Mahindra said: "The year gone by saw significant momentum in our key markets. While the pandemic has momentarily halted that journey, it is also throwing up opportunities. We continue to innovate, adapt and help all our businesses navigate through these troubled waters."

Tech Mahindra IPO in 2006

Doshi adds that later, as the company tried to seek more business from other telecom companies, especially the likes of France Telecom or Deutsche Telecom, it made sense to change the name Mahindra British Telecom to something different. As the company approached its IPO in 2006, the need to reduce dependence on British Telecom kept growing. The company's name was changed to Tech Mahindra, and after the IPO in August 2006, BT's stake in the company dropped from 50% to 36%.

Telecom sector also had boomed all across the world during that decade. Says Krishna Gopal, the global leader for the company today: "MBT had the opportunity to work with leading global telecom clients. AT&T was the first after BT. As it worked in regions like India, Africa and Middle-East and APAC, it got to do high-end jobs like system integration and consulting." These jobs were much higher up the value chain than compared to MBT's Indian peers working solely for clients in the western world.

Today Tech Mahindra is the largest company in the Group by market capitalisation

The goal of becoming a multi-vertical IT services player was achieved a few years laterwhen the Satyam acquisition took place in 2009. The opportunity presented itself in the form of a crisis of credibility of the Indian IT industry. It was the opportunity to take over of the beleaguered Satyam Computers in 2009. Tech Mahindra was half the size of Satyam at the time. The two later merged in 2013, and today Tech Mahindra is the largest company in the Group by market capitalisation crossing Rs 1 trillion.

Getting the team

In the history of Tech Mahindra, however, there was one more acquisition that was pivotal. It was the acquisition of the leadership team from Perot Systems. CP Gurnani, who leads Tech Mahindra today, and Vineet Nayyar and Sanjay Kalra moved to Tech Mahindra in 2004-05.

The hiring was also a story of its own. Gurnani says that he was the last among the trio to sign on, and Anand Mahindra sealed the deal over dinner in south Mumbai's Indigo restaurant. Apart from the freewheeling dinner conversation, Gurnani was also impressed by Mahindra driving himself to the meeting.

It was an entrepreneurial zeal in the team that, Gurnani says, found a corporate platform and freedom at the Mahindra Group. He explains how at the first presentation to the board he unveiled a strategy document for the company evolving into an IT services firm operating in multiple verticals in Dusseldorf. It was radical, and the board accepted the move away from the telecom focus that MBT had. However, barely two months later Gurnani changed track and opted to stay focused on telecom after having deliberated this with senior executives of the company in an annual strategy meet. Yet again, the Mahindra board did not question his decision — telecom was in the company's DNA.

Bagging Satyam

Tech Mahindra was half the size of Satyam during the takeover in 2009

Gurnani recalls how Mahindra took over Satyam after its erstwhile promoter admitted to fraud and was arrested. The acquisition turned out to be a minefield for the new owners, the Mahindra Group. There were many unknowns. The books of accounts were fudged, there were anti-trust litigations filed against the company in the US, and no one was sure what commitments the erstwhile promoter had made to his business partners. The first decision taken around Satyam - again a testament to the M&M credo - was that the company be made above board in all its dealings. The Mahindra Group cleaned up the balance sheet of Satyam and settled the trust suit in the US. The top management of Tech Mahindra worked closely with the employees of Satyam to regain their trust.

Gurnani, Nayyar and Kalra spent several months on the road, meeting clients, employees and in some cases, government officials, assuring them about the continuation of the business, and Mahindra's commitment to the company.

In 2013, after the company was on an even keel, Satyam was merged with Tech Mahindra. While it allowed for the company's clean-up between 2009 and 2013, the original Satyam shareholders also got a much better deal, as the merger was delayed and concluded after the company had recovered, and its share price was rising.

The progress

At a time when CP Gurnani was contemplating joining MBT, the company had revenues of USD 140 million with 90% coming from British Telecom. By the time of the IPO in 2006, the revenues had doubled to USD 280 million. By 2008, before the Satyam acquisition Tech Mahindra had touched USD 1 billion in revenues, with BT's share at less than 50%.

After BT, AT&T was the next big client for Tech Mahindra. From the time of the IPO in 2006, BT reduced its stake slowly in the company before finally exiting in 2012. This coincided with the Satyam takeover and merger, and therefore, Tech Mahindra emerged as a multi-vertical IT services company. The company closed the financial year 2019-20 with revenue over excess of INR 36,000 crore (around USD 5 billion). While in 2004, the company employed 5,000 people, today the employee strength is around 1.25 lakh.

Gurnani says he has a grand vision for the company becoming a technology pioneer of its own. "Tech Mahindra would become a provider of a product or process, that can change and adapt, much like a Tesla car that is software driven and can be reconfigured every morning. Tech Mahindra inside will be equivalent to technology inside."

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