Tech Mahindra close to big deal; exclusivity fee payment hits net

MUMBAI: Tech Mahindra has paid British Telecom (BT) $110 million as ���exclusivity fee��� for an impending mega-deal with the UK-based telco. The company is in exclusive negotiations with BT along with a consortium partner that is a large global IT player for a ���significantly large deal���, Tech Mahindra president (international operations) CP Gurnani said.

The upfront payment has hit its profitability in the fourth quarter of FY08 resulting in a $54.7 million net loss for the company. This is similar to the payment that Tech Mahindra had made for its earlier $1 billion deal.

Tech Mahindra had earlier denied an ET report that it had bagged a $700 million deal from BT. Sources said, this was a ���significantly large deal��� under discussion and Tech Mahindra was in exclusive negotiations for a 90-day period along with a lead consortium partner. Market talk is that the consortium partner is Accenture. Since April this year, there has been a strong buzz of a $1 billion BT contract being awarded to Accenture, although there was no comment from the parties involved in the transaction.

Tech Mahindra said, ���The company incurred an exceptional charge of $109.9 million towards an exclusivity payment to a customer for a long-term strategic transformation contract.��� The exceptional charge of Rs 440 crore has resulted in a Rs 221.4 crore net loss during the fourth quarter. Without this charge, the net profit for the quarter would have been Rs 219 crore, a 11.6% growth year-on-year.

Revenues during the quarter grew 16.9% over last year to Rs 1,021.8 crore. In dollar terms, the revenue for the fourth quarter was $257.8 million, making it a potential candidate for the billion dollar IT club in the next fiscal. ���We are confident of maintaining our growth trajectory... We have $2 billion backlog of confirmed orders,��� Mr Gurnani said.

For FY08, the company had revenues of $934.7 million and a net profit of $81.7 million. In rupee terms, the revenues for FY08 were Rs 3,766 crore, a growth of 28.6% from the previous fiscal and a net profit of Rs 329.9 crore. Tech Mahindra���s earlier deal with BT for $1 billion. It had come under a cloud in FY08 with ramp-ups and orders not happening as expected.

However, Mr Gurnani said 1,200 people were now working on the contract and the company expects a fair amount of revenue to flow in from the deal during the current fiscal. On Friday, Tech Mahindra stock closed at Rs 956.65 on BSE, up about 4% from its week ago close of Rs 918.65.