Mumbai: IT services provider Tech Mahindra's plan to boost revenue from the telecom sector seems to have hit a roadblock given the slowdown in the $1 billion AT&T project, and as clients put on hold discretionary spends, delaying 5G rollout.

Telecommunication comprises about 40% of Tech Mahindra’s revenue and the company had been betting on telecom operators going ahead with their 5G implementation plans this year. But the covid-19 pandemic put a hold on their plans. Client discussions, however, haven’t stopped yet, the management told Mint.

“Currently, governments are busy tackling the pandemic. For 5G implementations there is a lead time required to licence the technology, procure network resources. Most of the key investments have stepped into the slow lane. But discussions have certainly not stopped," said CP Gurnani, CEO & MD, Tech Mahindra.

Telecom clients continue to see 5G investments as a priority but they are unable to take these decisions currently, he added. Due to the pressure on remote working globally, communications infrastructure is already stretched, with network traffic getting congested globally. Discussions may have slowed down now, but clients do see the urgency of going forward with telecom rollout. Tech Mahindra had earlier said clients have been cutting down on discretionary spends.

Tech Mahindra posted a consolidated net profit of ₹804 crore in the March quarter, down 30% sequentially, missing analyst expectations. Revenue for FY20 stood at ₹36,868 crore, up 6% year-on year, and profit at ₹4,033 crore was down 6.2%. The company reported deal wins of $500 million in the first 45 days of the quarter, closing the year with $3.7 billion in deal wins.

“The Communications vertical declined sharply by almost 8.4% sequentially but we note that FY20 still marked a turnaround in fortunes (for Tech Mahindra) with growth outpacing the Enterprise segment for the first time since FY15," Emkay Global said in a report.

The company now plans to bring a majority of its workforce to premises, complying with safety norms, to turn the situation around at the earliest.

“We are factoring the work from home situation for the next four quarters. What is reasonable is that 25-30% will continue to work home and we are working this out with customers. We are not factoring long-term continuation for this (work from home) yet," said Manoj Bhatt, CFO, Tech Mahindra.

Many IT peers expect to continue in the long term with only 25% employees on premise and the rest working from home.

“We expect FY2021E would be a weak year for TechM given potential revenue loss in its BPO business (due to nationwide lockdown and non-availability of work-from- home approvals for around 25% of its BPO employees) during Q1FY2021, deferment of discretionary spends in certain pockets and delay in ramp- up of new deals," a report by BNP Paribas said.

Analysts though see the communications business showing some resilience due to the larger global demand for better telecommunications services.