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Tough task ahead for Tech Mahindra post Satyam buyout
April, 16th 2009

Tech Mahindra has a challenging task on its hands post its acquisition of Satyam, said industry observers. The factors that could make this integration a complex task are Tech Mahindras lack of experience in most of Satyams business verticals and issues relating to its own core business.

Tech Mahindra certainly gets breadth in skills post merger (with Satyam). But what it lacks is depth in terms of client base and leadership in the new verticals that it would get access to after the merger, said Edelweiss Securities IT analyst Viju George.

Analysts also said that integrating a large pool of over 46,000 Satyam employees across verticals that are somewhat unfamiliar to Tech Mahindra would be anything but easy. The business profiles of both the companies are totally different. While Tech Mahindra earns majority of its revenue from European market by providing telecom solutions, Satyam is far more diverse in verticals as well as geographies, said India Infoline IT analyst Rajiv Mehta.

Apart from these external headaches, Tech Mahindra faces challenges from its own business. The company, which earns three out of every five rupees by serving the UK-based BT Group, is suffering from the slowdown in global telecom markets. The single-biggest client, BT, is not doing well and this is going to put a lot of pressure on Tech Mahindra, said SBICAP Securities research head Anil Advani.

In the December08 quarter, BT had reported a decline in its high-margin UK business and announced a staff reduction of 1,500. It had reported a steep year-on-year fall of 73% in net profit for the quarter.

When contacted, BT declined to comment on its outsourcing contracts while Tech Mahindra said it was in its silent period before the Q4 results.

A company official said Tech Mahindra had won six deals in January and February 2009 from non-BT clients such as Nokia Siemens, MTN, StarHub and Motorola. According to an internal communication meant for its employees, the company could not clinch a single deal in March.

Tech Mahindra is also believed to have let go about 250 employees in the past three months citing reasons of non-performance. It had earlier set up two centres for every project as part of its disaster recovery plan. Now, due to cost-cutting, one location is being shelved for each project and employees asked to either shift to other projects or leave, said another company official. The company had 25,429 employees as of December08.

Tech Mahindra is facing a slump in demand from its US clients as well. The company is learnt to have moved most of its onshore employees in the US and the UK to its offshore centres.

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