Informist, Thursday, Apr 25, 2024

--Jan-Mar consol net profit 6.61 bln rupees
--Analysts saw Tech Mahindra Jan-Mar consol net profit 7.86 bln rupees
--Jan-Mar consol revenue 128.71 bln rupees
--To pay 28 rupees/share final dividend
--Jan-Mar consol PAT 6.61 bln rupees vs 5.10 bln qtr ago
--Jan-Mar consol sales 128.7 bln rupee vs 131 bln qtr ago
--Jan-Mar constant currency revenue fell 0.8% QoQ
--FY24 consol revenue 519.96 bln rupee vs 532.90 bln
--FY24 consol net profit 23.58 bln rupees vs 48.31 bln
--Jan-Mar EBIT margin 7.4% vs 5.4% qtr ago
--Jan-Mar EBIT 9.46 bln rupees, up 34.6% on quarter
--Jan-Mar communications vertical sales down 2.8% QoQ
--Jan-Mar manufacturing vertical sales down 0.9% QoQ
--Won new deals worth $500 mln in Jan-Mar
--IT services last 12-month attrition 10%, unch QoQ
--Total headcount fell 1% QoQ to 145,455 in Jan-Mar
--Jan-Mar active clients 1,172 vs 1,228 quarter ago
--Jan-Mar BFSI vertical sales up 3.5% QoQ
--FY24 EBIT margin 6.1% vs 11.4% in FY23
--CEO: Look forward to improvement in client spends FY25
--Deal wins were across verticals in Jan-Mar
--Client reduction a conscious strategy

By Apoorva Choubey

MUMBAI – Lower sales from Tech Mahindra Ltd's largest vertical, communications, weighed on the company's revenues for the March quarter, while the absence of one-off costs helped its bottom line and operating margins to expand on quarter. The company posted a sequential rise of 29.5% in consolidated net profit for Jan-Mar to 6.6 bln rupees, but missed the Street's expectations of a 7.9-bln-rupee bottom line.

Brokerage reports had said the absence of provisions for unprofitable contracts would boost the company's Jan-Mar profit after tax sequentially. The Mahindra group company's consolidated revenue for the reporting quarter fell 1.8% on quarter to 128.7 bln rupees, lower than analysts' average estimate of 129.8 bln rupees.

On a constant currency basis, the company's Jan-Mar revenue fell 0.8% on quarter. Compared to a year ago, Tech Mahindra's net sales fell 6.2% and net profit fell nearly 41%.

Tech Mahindra's communications, media and entertainment division, which makes up around 36% of sales, has been hit over the past few quarters by sharp cuts in discretionary spending by telecom companies. Reduction in overall discretionary spending around the globe due to macroeconomic challenges continued to hurt the vertical in Jan-Mar, and dragged down the performance of some other divisions as well, the company's management said.

Revenue from the communications, media and entertainment vertical declined 2.8% on quarter during Jan-Mar, after seeing a sequential fall of 0.3% in Oct-Dec and 4.9% in Jul-Sep. Apart from the weakness in the telecom sector, Tech Mahindra's strategy of exiting some low-margin contracts also hit the company's communications vertical sales over the past few quarters, but not so much in the March quarter.

"As we step into FY25, we look forward to improvement in clients' spending, which fuels our optimism for a better revenue performance ahead," Mohit Joshi, managing director and chief executive officer of Tech Mahindra, said in a press release. Joshi expects the current financial year to be better for the company.

The company saw an improvement in deal wins to $500 mln during the March quarter, higher than $381 mln in Oct-Dec. Deal wins will still be below normalised levels due to the macroeconomic environment and slow decision-making by clients, brokerage Kotak Institutional Equities had said in a preview report.

The company said it won deals across segments during Jan-Mar. Sales from the banking and financial services vertical rose 3.5% on quarter while manufacturing vertical sales fell 0.9% during the March quarter.

Operating profit for the reporting quarter, defined as earnings before interest and tax, rose 34.6% on quarter to 9.46 bln rupees. During the quarter, besides lack of restructuring costs, lower subcontracting costs, better utilisation, increase in the number of time and material contracts, and steady attrition are expected to have underpinned profitability. Time and Material is a type of business engagement in which the client pays only for the time and resources spent on a project.

Tech Mahindra's operating margin for the March quarter was 7.4%. In Oct-Dec, the company's EBIT margin had recovered to 5.4% from the historic low of 4.7% for Jul-Sep. Analysts had expected an improvement of over 200 basis points in profitability during the March quarter.

The company's margins have tumbled over the past three-to-four quarters due to a sharp decline in revenue, bankruptcy of a couple of customers, and business restructuring, including termination of unprofitable contracts. For 2023-24 (Apr-Mar), its operating margin fell to 6.1% from 11.4% a year ago.

Tech Mahindra also continued to reduce the number of active clients as per its strategy of focusing on accounts that offer a high potential of scaling up and end-to-end services. The company's active client base fell to 1,172 from 1,228 a quarter ago. Total expenses for the quarter were 122.9 bln rupees, down 1.8% sequentially.

The company's employee headcount fell 1% on quarter to 145,555 for Jan-Mar, while the trailing 12-month attrition remained unchanged at 10% three months ago.

Tech Mahindra's consolidated net profit for the full year plunged 51.2% on year to 23.58 bln rupees, while net sales decreased 2.4% to 519.96 bln rupees. The company's board approved a final dividend of 28 rupees/share.

The company announced its earnings after market hours today. Its shares ended 0.4% higher at 1,190.30 rupees on the National Stock Exchange. End

US$1 = 83.32 rupees

Edited by Rajeev Pai

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