Tech Mahindra Q1 Critical Result
Tech Mahindra, the fifth-largest exporter of IT services in the nation, stated on Tuesday that its consolidated profit after tax (PAT) for the second quarter of FY23 (July-September) fell by 4% year over year as higher expenses offset an increase in revenue. The company reported a profit of 1,338.7 crores for the same time last year. The IT services exporter’s PAT increased 13.6% sequentially from 1,131.6 crores in the April to June quarter.
The business board also disclosed a special dividend of 18 cents per share. The quarter’s revenue was reported at 13,129.50 crores, a 20.6% YoY increase over the 10,881.30 crores earned during the same quarter the prior year.
The revenue increased sequentially by 3.3%. The dollar revenue increased by almost 3% sequentially in constant currency (CC) levels. Dollar revenue for the quarter was $1,632 million, an increase of 1.5% over the prior period (up 18% YoY).
Revenue growth for the most recent quarter was 3.5% in constant currency (QoQ). CP Gurnani, managing director and chief executive officer, said, “Starting this fiscal year, we are more committed than ever to providing dependable organic growth. Given the volatile global macroeconomic environment, we continue to be robust and vigilant and will continue to invest in cutting-edge technology to provide unique products.”
Net new deal wins for the quarter were $803 million, less than the $1,011 million in March and the $815 million in the prior quarter. On a 12-month basis, attrition for the quarter dropped from 24% in the March quarter to 22%, but it was still higher than the quarter-ago at 17%. The Ebit margin for the quarter was 11%, down from 13.2% from the prior quarter and 15.2% from the same period last year.
There were 23, the same as the previous quarter, clients with $50 million or more in revenue. Clients with $20 million or more in revenue increased from 54 to 60 consecutively, and those with $10 million or more increased from 97 to 104.
Software professionals now number 88,030, a 26% YoY increase—additionally, BPO professionals in sales and support. Due to a rebound in demand across many market areas, Tech Mahindra has reported a good set of financial results.
Tech Mahindra continues to experience significant growth in the size of its deal wins, with net new deal wins coming in at $815 million. The business has made significant investments to take advantage of opportunities created by the expansion of the 5G value chain across networks and IT services offered by both telecom service providers and businesses.
A tectonic change toward increasing digitisation in business processes has been compelled by the Covid-19 pandemic. In fact, Tech Mahindra claims that a large portion of its clients are embracing cutting-edge technology as companies all over the world actively pursue digital transformation.
Revenue in Constant Currency
Tech Mahindra’s overall revenue totalled $1,632 million in dollars, representing a reported gain of 1.5 per cent on a sequential basis and 3.5 per cent in constant currency terms. The annual growth rate for dollar revenue was 18%, whereas the annual growth rate for constant currency was 21.2%.
Revenue by business verticals
The company’s core business, the communications, media, and entertainment vertical continued to thrive during the quarter, accounting for 40.4% of total revenues with significant YoY growth of 19.1% and sequential growth of 1%.
Manufacturing, which saw growth of 8.9 per cent annually and 3.9 per cent quarterly, contributed 15.3 per cent of the total revenues.
The 9.7 per cent of revenues from the technology sector saw a sequential increase of 6.4 per cent and the highest YoY growth of 30.3 per cent.
BFSI (banking, financial services, and insurance); retail; transport & logistics; and others contributed 16.7%; 7.9%; and 10% of the quarterly revenues, respectively, while posting positive double-digit annual growth.
Revenues from America accounted for 49.6 per cent of the company’s total revenue, growing by 25.6 per cent year over year and 4.4 per cent sequentially. Revenues from Europe decreased somewhat from 27.2 per cent at the same time last year to 25.5 per cent this year. Europe’s growth was 10.7% yearly but fell by 1.9 per cent quarter over quarter.
Additionally, the share of the rest of the world decreased somewhat year over year from 26.1 per cent last quarter to 24.9 per cent this quarter. The region’s revenue increased by 12 per cent year over year and decreased by 0.4 per cent from the prior quarter.
The company’s EBIT (earnings before interest and tax) margins for the quarter fell 220 bps QoQ to 11 per cent due to rising labour costs, travel costs, and supply-side pressure. The EBIT margins have shrunk by 420 bps year over year.
Deal Wins and Client Metrics
Total contract value (TCV) for new deals for the quarter was $802 million, down from $815 million for the corresponding period last year.
After the quarter, the company had 1,262 active clients, up from 1,224 at the end of the March quarter and 1,058 clients during the same time last year.
Tech Mahindra has 23 clients with $50 million or more in revenue, 60 clients with $20 million or more, 104 clients with $10 million or more, 176 clients with $5 million or more, and 549 clients with $1 million or more in revenue.
Headcount & attrition
Compared to the prior quarter’s attrition rate of 24 per cent and the same period, last year’s attrition rate of 17 per cent, the company’s LTM (last 12 months) attrition rate for the quarter was 22 per cent. At the end of the quarter, there were 158,035 total resources available, with an 83 per cent utilization rate.
Since the stock’s record high in December 2021, it has fallen almost 44%. Although there has been some recent improvement, it is still range-bound. On July 25, it traded at Rs. 1,017.25 on The National Stock Exchange, down Rs. 11.45.
Edited by Prakriti Arora