Tech Mahindra K1 critical score
Tech Mahindra, the country’s fifth-largest IT services exporter, on Tuesday said its consolidated profit after tax (PAT) for the second quarter of FY23 (July-September) fell 4% year-on-year as higher costs offset the increase income. The company recorded a profit of 1,338.7 million in the same period last year. The IT services exporter’s PAT rose 13.6% sequentially from 1,131.6 million in the April-June quarter.
The business board also declared a special dividend of 18 cents per share. Quarterly revenue was reported at ₹ 13,129.50 crore, an increase of 20.6% year-on-year from the ₹ 10,881.30 crore earned in the same quarter last year.
Revenue increased sequentially by 3.3%. Dollar revenue was up nearly 3% sequentially at constant currency (CC) levels. Dollar revenue for the quarter was $1,632 million, an increase of 1.5% over the prior period (up 18% year-over-year).
Revenue growth in the last quarter was 3.5% in constant currency (KOC). CP Gurnani, Managing Director and Chief Executive Officer said, “Starting this fiscal year, we are more committed than ever to ensure reliable organic growth. Given the changing global macroeconomic environment, we continue to be robust and cautious and will continue to invest in cutting-edge technology to provide unique products.
Net new contract gains for the quarter were $803 million, down from $1,011 million in March and $815 million in the previous quarter. On a 12-month basis, the loss for the quarter fell from 24% in the March quarter to 22%, but was still higher than the previous quarter at 17%. The EBIT margin for the quarter was 11%, which is less than 13.2% compared to the previous quarter and 15.2% compared to the same period last year.
There were 23, the same as in the previous quarter, of 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.
There are now 88,030 software professionals, a 26% increase over the same period last year—and in addition, BPO sales and support professionals. Due to demand recovery in many markets, Tech Mahindra reported good financial results.
Tech Mahindra continues to experience significant growth in the size of its wins, with net new business gains of $815 million. The company has made significant investments to take advantage of the opportunities created by expanding the 5G value chain across networks and IT services offered by both telecommunications service providers and enterprises.
The tectonic change in the direction of increasing digitization in business processes was forced by the Covid-19 pandemic. In fact, Tech Mahindra claims that a large portion of its customers are embracing cutting-edge technology as companies around the world actively pursue digital transformation.
Income in constant currency
Tech Mahindra’s total revenue stood at $1,632 million in dollars, representing a recorded gain of 1.5 percent on a sequential basis and 3.5 percent on a constant currency basis. The annual growth rate of revenue in dollars was 18%, while 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 revenue with significant year-over-year growth of 19.1% and sequential growth of 1%.
The manufacturing industry, which recorded growth of 8.9 percent on an annual basis and 3.9 percent on a quarterly basis, contributed 15.3 percent of total revenues.
9.7 percent of revenue from the technology sector recorded a consecutive increase of 6.4 percent and the highest growth compared to the previous year of 30.3 percent.
BFSI (Banking, Financial Services and Insurance); retail; transport and logistics; and the others contributed 16.7%; 7.9%; and 10% of quarterly revenues, respectively, with positive double-digit annual growth.
Geographic distribution
Revenues from the Americas accounted for 49.6 percent of the company’s total revenue, up 25.6 percent year-over-year and 4.4 percent sequentially. Revenues from Europe decreased slightly from 27.2 percent at the same time last year to 25.5 percent this year. Growth in Europe was 10.7% year-on-year, but fell 1.9% quarter-over-quarter.
In addition, the share of the rest of the world decreased somewhat year-over-year from 26.1 percent last quarter to 24.9 percent this quarter. Revenues in the region were up 12 percent year-over-year and down 0.4 percent quarter-on-quarter.
Margins
The company’s EBIT (earnings before interest and tax) margin for the quarter fell 220 basis points QoC to 11 percent due to rising labor costs, travel costs and supply-side pressure. EBIT margins decreased by 420 bps YoY.
Business winners and client metrics
Total contract value (TCV) for new business for the quarter was $802 million, down from $815 million in the same period last year.
After the quarter, the company had 1,262 active clients, compared to 1,224 at the end of the March quarter and 1,058 clients in the same period 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.
Number of employees and exhaustion
Compared to the previous quarter’s attrition rate of 24 percent and the same period last year’s attrition rate of 17 percent, LTM’s attrition rate (last 12 months) for the quarter was 22 percent. At the end of the quarter, there were 158,035 total resources available, with a utilization rate of 83 percent.
Since the stock’s record high in December 2021, it has fallen nearly 44%. Although there have been some improvements recently, it is still limited in range. On July 25, it traded at Rs. 1,017.25 on the National Stock Exchange, down Rs. 11.45.
Edited by Prakriti Arora