Tech Mahindra wins new contracts from Three UK

To increase the revenue growth rate, the IT services firm plans to focus more on annuity type deals along with large ones

Bengaluru: As a sign of vendor consolidation in the IT industry, Tech Mahindra has increased its engagement level with UK-based telecom major 'Three UK' by winning more outsourcing contracts.

Sources in the know said 'Three UK' has decided to shift some of the contact call centre operations managed by BPM (business process management) service provider Capita to Tech Mahindra, which is already managing the majority of call centre operations for the UK telecom major. Mails sent to Tech Mahindra remained unanswered at the time of going to press.

"It's a sign that vendor consolidation is happening across all service lines in the IT industry and Indian IT majors are gaining market share as compared to their global counterparts," said Pareekh Jain, an IT outsourcing advisor and founder of Pareekh Consulting. "Given the difficult business environment, even clients are terminating contracts prematurely and shifting business to existing vendors," Jain added.

According to sources, 'Three UK' has entered into an agreement with Capita in 2016 for managing its call centre operations involving sales and customer support. Though the contract has 7-year long, it was terminated prematurely by 'Three UK' with the business shifting to Tech Mahindra.

With this deal, while most of the work will move to Tech Mahindra, which already manages the majority of our contact call centre, the rest will be managed by 'Three UK'.

In the recently concluded analyst meets, the top management of Tech Mahindra has shown optimism on the company's future growth.

To increase the revenue growth rate, the IT services firm plans to focus more on annuity type deals along with large ones. "Tech Mahindra sees a large deal size of $75-100 million as a sweet spot for itself. The company is also looking to rationalise geographies, business lines, and customers to better allocate resources," brokerage firm ICICI Direct wrote in a note.

The IT firm also sees 5G roll out in different nations to provide a huge opportunity for driving revenue growth. "The company expects network transformation in telecom, increased R&D spends on network & devices and use of 5G in the enterprise to drive 5G related spends. To cash in these emerging opportunities, the Tech Mahindra is reskilling its employees and partnering across segments," the note said.

On the margin front, Tech Mahindra expects to reach 15 per cent margin level by FY22 led by higher offshoring, lower subcontracting cost, pyramid rationalisation, and reduction of focus on low margin geographies, services & customers. In the quarter ended September, the IT services operating margin improved by 410 basis points to 14.2 per cent as compared to 10.1 per cent reported in the previous quarter.