Tech Mahindra CFO Milind KulkarniIT company Tech Mahindra may turn to more offshoring to neutralise the tax impact as and when Joe Biden’s corporate tax hike comes into force, said its Chief Financial Officer Milind Kulkarni.
Biden is proposing to hike corporate tax in the US to 28 per cent from 21 per cent currently to fund his ambitious $2.3 trillion infrastructure plan. The newly elected President though has softened his stance, indicating he is willing to accept a 25 per cent corporate tax rate. His economic proposals are yet to come into force; they could have implications for Indian IT companies, which conduct significant business from the US geography.
“Obviously, it would mean additional tax liability (for us) like any other company operating in the US. The 28 per cent is a headline rate, on top of it there is also a state tax in the US, which works to about 4 per cent roughly. That’s fine, there is nothing one can do with it. We will have to plan to improve our margin in such a way it absorbs. We will try and do more business offshore from India, to the extent the tax liability in the US comes down,” Milind Kulkarni, Tech M CFO told ETCFO in a phone interview.
The Indian IT companies have a strong foothold in the US and over the several years have adapted themselves well to the changing regulations there, the CFO indicated. “Even four years back, the tax rates in the US were 28 per cent only. We will just go back to that time,” Kulkarni said.
The CFO stated that the lockdowns imposed by various states to contain virus, are unlikely to have a major bearing on Tech Mahindra’s operations, stating the company has learnt its way from last year’s experience of complete lockdown. “The processes related to work from home (WFH) are fully in place, and more than 95 per cent of the company’s associates are operating that way,” he said.
We have now become significantly resilient, and delivering services remotely. From a business perspective, the Europe, UK and the US markets are showing a positive trend, these regions have gone through what India is going through now. Most places like California (US), people have started going to offices. Demand continues to be there…Tech Mahindra Chief Strategy Officer Jagdish Mitra
The pandemic has accelerated the pace of digital transformation for businesses. The IT companies have benefitted from this trend. Tech Mahindra is expecting the momentum to hold up even as the fresh Covid disruptions return.“Our deal pipeline is looking extremely positive and progressive. They are driven by cloud transformation, as well as modernisation and migration opportunities, which make up 65-70 per cent of the business as we go forward. We are significantly ramping up on that front,” Mitra said.
M&A and capital allocation
Tech Mahindra’s CFO Kulkarni said the virus will not deter the company’s M&A plans. Tech Mahindra, which in April, acquired US-headquartered consulting service company Eventus for $44 million, and hybrid cloud provider DigitalOnUs for $120 million, will be open for more acquisitions as and when the company feels the need to scale up its capabilities.
As far M&A is concerned, we are looking at acquisitions where there are wide spaces, or where we have our capacities, and capabilities but we want to further add and strengthen them. We will look at acquisitions even in future, and fortunately we have money to do that.Tech Mahindra CFO Milind Kulkarni
The finance executive also said the company’s capital allocation policy will remain unaffected by the virus and that Tech Mahindra will continue to strongly reward its shareholders.
“FY21, we declared a dividend which is 95 per cent of profit after tax; we returned 68 per cent of cash inflows. We are quite liberal in terms of returning money to shareholders. We have surplus funds to about $1.5 billion, that’s why we are able to return so much to shareholders despite acquisitions and normal capex. We will not change our policy in any manner,” Kulkarini said.
The finance executive shared how Tech Mahindra is supporting employees during Covid-19 situation. He said the company has converted its many office campuses as Covid-19 facilities, has set up a 24*7 Covid-helpline for its 1.21 lakh employee base to help them arrange for beds, or oxygen support in case required, and has also tied up with private hospitals to cover vaccination of its employees.
Currently, 1-1.5 per cent of the company’s employee count is Covid infected, and the company is extending full support to them. “Also, we have tied up with private hospitals, and are further trying to import the vaccine,” the CFO said.
Tech Mahindra does not see any major hurdles on the supply side in vaccinating its employees, and is fully prepared to take care of them, signed off Chief Strategy Officer Jagdish Mitra.