In a biggest overseas acquisition,  Tech Mahindra acquired Virginia based Lightbridge Communications Corporation (LCC) for an enterprise value of approximately USD 240 million. The company's annual revenue stands at nearly USD 400 million. The deal which is funded via internal accruals and the acquisition is likely to be completed by fourth quarter of FY15. LCC is one-of-the world’s largest independent global providers of network engineering services provider with more than 5000 employees in over fifty countries. Speaking to CNBC-TV18, Vineet Nayyar said employees of LCC need not fear retrenchment. "We don’t see absorbing LCC’s 5,700 employees a challenge. The company said that the buyout is not only based on the EPS accretiveness adding that "Tech Mahindra has a track record of turning around company like Satyam."

Kritika: This is one of the largest acquisitions you have made overseas. USD 240 million this is coming in from your internal accruals, how comfortable would you be to be able to make another bay acquisition now? Are you dipping too much into your cash flows yet or are you comfortable? 

Nayyar: I am very comfortable and we have always said for us acquisitions are strategic; we don’t do them to bulk. So, this is a very strategic acquisition in the sense that the network market is almost as large as IT market in the areas we are in. So, consequently getting into this space will give us a brand new market to grow in. This is the largest company in the world in the network side and they have tremendous expertise. It will give us new markets and it will supplement the area in which we had started somewhat gingerly going into and now we will have the vehicle to expand. So, the way I look at it is that why this is so strategic to us is that it gets us into a brand new area. We are there but we have been making tentative steps there but now we will do it with people of recognised competence, who have been there for 30 years and have a great brand acquisition. So, that is the difference. 

Kritika: We have been talking about USD 5 billion till the Q4 of CY2015. As Vineet had said it is an aspiration that you are hoping to achieve. How much better placed are you now to be able to reach that acquisition with this deal coming in and what is the kind of revenue growth that you are expecting? 

Give me a clear cut number by the end of next year. Gurnani: The good news is earlier it was an aspiration of about 60,000 people when we met in 2012 end. Now I can say it has become an aspiration of 100,000 people. So, if there is a power of dreams then I have the tailwind of 100,000 dreams with me. Secondly, I think important is that we are working hard towards this aspiration, towards our stretched goals. Post this acquisition, post merger formalities being completed it is clear that our last quarter run rate was USD 3.6 billion. This company gives me about USD 100 million plus per quarter so now the gap is next five quarters, last quarter we have to deliver USD 1250 million if we were to meet our goals, our stretched goals, again repeating it is a direction, it is not a commitment; it is not a guidance.

 Kritika: You have taken in 5,700 employees just a clarification from you will you be absorbing all of them is there a possibility that in the overlap in the consolidation as we see in any acquisition there could be any involuntary or voluntary exists for that matter?

 Nayyar: I don’t see that because 1)– these are people with great expertise. 2) – the business is kind of local 3) – after all we have taken this not sit still we are going to expand we are going to grow we see this as a great market to go into which is by and large untouched by our traditional IT companies. So, absorbing good technical people of this number is not going to be a challenge so I don’t see any reduction. 

Kritika: Will the entire management of the LLC will be absorbed into Tech Mahindra and Tech Mahindra network solutions team can you just clear that bit out and would there be any changes in your current management structure as a result of that? 

Nayyar: As CP Gurnani has already announced we will have a people like Manish Vyas who heads our Teleco practice and Ayon Banerjee these are the guys who will be working with Kenny to make this grow as a composite unit. 


Reema:


 Would this deal be earnings per share (EPS) accretive from year one, that’s in CY15? Gurnani: Deputy CFO has already clarified - year one it is little diluted but overall it will be an accretive deal from year two onwards. 



Reema: Let’s assume you meet your aspirations by USD 5 billion of revenue run rate in Q4 of CY15 that is about a year from now. What would be the approximate margins that Tech Mahindra would be comfortable with say in the next five quarters? Gurnani: We will have to separate my business momentum which is my current business momentum of USD 900 million a quarter. We clearly have internal operating levers and we will be working on it and number two is what I call upscaling of LCC business, upscaling here is both from growth and from earnings before interest, taxes, depreciation, and amortization (EBITDA) margins. We have to trust both the sides because only doing operating margin increase is not the way we run the business we want to grow the business and also improve the operating margins so I am reasonably confident that you will see a rise in trajectory at this stage I would not like to give any guidance because we never give any guidance. 



Reema: Network Services Management (NSM) has clearly been a focus area for Tech Mahindra, your last two big deal wins were also in the NSM area. What is the kind of growth rate that you expect from Network Services in the next one year? 

Nayyar: As I said it is a USD 80 billion market and we have not even scratched the surface and that is what excites me. Reema: What would be the margins in NSM generally for the industry and the growth rate that you expect for the industry? Nayyar: Communication has become the life plant of every industry, every enterprise. It is going to see dramatic growth rate and also remember that technology is evolving, the technology is changing which would create its own new demands and its own new obsolescence. With all these factors put in this is in many ways a sunrise area. It is traditional but it is going to see a tremendous change over the period. The magnitude of connectivity is going to escalate exponentially. So, look at it on a macro sense. I think we have done the right thing, we are moving in the right direction. I am relatively indifferent to what the EPS is going to be because this is where the potential lies and this is how Tech Mahindra is going to differentiate itself from other entities.