Tech Mahindra Q4 Results: Profit Drops 12.5% Amid Flat Revenue, Margin Miss
Tech Mahindra's net profit fell 12.5% QoQ to Rs 1,125 crore in Q4 FY23 on the back of revenue which was flat at Rs 13,720 crore.
Growth at Tech Mahindra Ltd. narrowed and profitability faltered in the March quarter, as macroeconomic headwinds weighed on the pace of dealmaking.
Revenue of India’s fifth largest IT services firm fell 0.11% over the previous three months to Rs 13,718.20 crore in the quarter ended March 31, according to an exchange filing on Thursday. That compares with the Rs 13,812.94-crore consensus estimate of analysts tracked by Bloomberg.
Tech Mahindra Q4 Results 2022-23: Key Highlights (QoQ)
Revenue down 0.11% at Rs 13,718.20 crore (Estimate: Rs 13,812.94 crore)
EBIT down 19.93% at Rs 1,317.8 crore (Estimate: Rs 1,689.97 crore)
EBIT margin at 9.60% vs 11.98% (Estimate: 12.23%)
Net profit down 12.47% at Rs 1,125 crore (Estimate: Rs 1,322 crore)
The Tech Mahindra board has recommended a final dividend of Rs 32/share, taking the total payout to Rs 50/share for the full financial year.
In dollar terms, revenue growth was flat sequentially but grew 0.3% in constant currency terms to $1,668 million. EBIT—a measure of operational profitability—declined 5.7% quarter-on-quarter to $245 million. Net profit declined 13.7% to $136 million.
For the full fiscal, revenue was up 19.4% year-on-year to Rs 53,290 crore, even as net profit dipped 13.2% to Rs 4,832 crore. EBIT was up 0.1% over the year ago to Rs Rs 8,029 crore, even as margin shrank 290 basis points to 15.1%. Free cash flow stood at Rs 4,002 crore.
WATCH | Tech Mahindra's Q4 Report Card
“I call it a great quarter not because the results are anything spectacular. I call it a great quarter because we continued to invest,” Chander Prakash Gurnani, chief executive officer of Tech Mahindra, said in a post-earnings media scrum.
“I think as a company I have always believed in never to waste a crisis,” he said, harping on the geopolitical overtures that have gripped some of the biggest markets of Indian IT firms. “That crisis presents an opportunity. We are repurposing ourselves and making sure we are well represented in countries with growth potential.”
Gurnani is confident that the resurgence of the IT services sector will happen very soon, if not in the next two quarters. Tech Mahindra will be ready, when that happens. “And hence we will continue to invest,” he said.
“The previous economic downturns taught us that it is a good opportunity for us to reinforce and relook at some of our processes… We have continued to focus the organisation on development of new skills, upskilling and being ready for the market.”
Segment-Wise Performance
According to Gurnani, Tech Mahindra’s network services vertical—as a standalone—is now generating $1 billion in revenue per year. Even the 5G segment is a billion-dollar enterprise.
Revenue of the BPO vertical rose 26% year-on-year to Rs 1,920 crore.
IT services revenue increased 11% year-on-year to Rs Rs 11,800 crore.
The crucial communications vertical grew 1.5% in constant-currency terms over the year-ago period.
“5G is an integral part, from a telecom standpoint, but it’s still in an early stage—as far as global penetration is concerned,” Rohit Anand, chief financial officer at Tech Mahindra, said during a post-earnings interaction with BQ Prime. “That said, telecom operators are focused on driving 5G adoption.”
The financial services vertical—the biggest for India’s largest IT firms but not so much for Tech Mahindra—grew 10% annually. “We've discontinued some non-strategic business due to headwinds emanating from the current macro environment,” Anand said.
WATCH | Tech Mahindra CFO On Q4 Numbers
Among other revenue streams, hi-tech rose more than 20% in FY23, but Anand warned of future growth due to slowdown trends. The healthcare vertical, which Tech Mahindra restructured in FY23, shrank but is set to grow in the current financial year.
Dealmaking
According to Anand, Tech Mahindra’s deal pipeline as on March 31 was similar to that seen in the past 3-4 quarters, but there’s a visible delay in decision-making—from 90 days to 100-120 days.
The company clocked a total contract value—or net new deal wins—of $592 million in the March quarter. For the full year, the figure stood at $2.9 billion. “We are seeing much more diligence in approving and signing off deals,” Anand said.
The texture of dealmaking is also changing.
“We had a higher proportion of digital transformation deals during the pandemic. That is continuing but is displaced partially by deals around efficiency,” Anand said.
People Power
The company’s attrition rate eased to 10% on a trailing twelve-month basis in the March quarter. For the full year, the figure stood at 14.8%. The company had a total headcount of 152,400 employees as on March 31. Utilisation levels improved to 86% from 84% in the year-ago period.
The March quarter results come against the backdrop of a leadership transition at the Mahindra Group firm—CEO CP Gurnani is making way for former Infosys Ltd. President Mohit Joshi at the helm as he set to achieve superannuation at the end of this year. While that’s seen as a positive, especially since Joshi is a financial services veteran, a growth turnaround is still awaited.
During the quarter, Tech Mahindra also announced that it will invest up to Rs 700 crore in its newly carved out Products & Platform division in the next two years to make it a billion-dollar enterprise. The investment will be led by group company Comviva’s Gurugram-based team.
On Thursday, Tech Mahindra shares rose 0.80% to Rs 1,004.20 apiece on the BSE, even as the benchmark Sensex ended the day 0.58% higher at 60,649.38 points. The quarterly results were declared after market hours.