Revenue impact will pressurize the margins. Goal is to get back to margin to teens by a year.
Software services provider Tech Mahindra has reported a 29.8 percent QoQ decline in profit at Rs 803.9 crore due to impairment of the company’s subsidiaries (Rs 217crore).
Revenue from operations degrew by 1.7 percent sequentially to Rs 9,490.2 crore in quarter ended March 2020.
The sequential decline in revenue was 3.3 percent in constant currency, while EBIT margin declined 220bps included the credit loss margin evaluated every quarter.
Here are the highlights of Tech Mahindra's Q4FY20 earnings call compiled by Narnolia Financial Advisors:
Management Participant: CP Gurnani – MD & CEO, ManojBhat – CFO
Q4FY20 performance:
The sequential decline in revenue of 3.3 percent constant currency terms was mainly attributable to; 1) half came from COVID-19 impact (impact in BPS due to supply side constraints and delay in approval from client); 2) deferral of IT spend from customer side in network; and 3) due to weakness in Comviva business (renewal & new sales were impacted).
Many deal wins which started during the course have seen impact. Execution start slowed down during Q4.
Margin performance:
EBIT margin declined 220bps included the credit loss margin evaluated every quarter.
The company has a higher risk for potential future problems, which impacted margins by 100 bps (including CSR).Transition cost for new deal impacted the margins. And then COVID-19 related revenue and utilization impacted margin by further 80 bps.
Currency was positive for the company which benefited 30 bps.
PAT for Q4 was impacted due to impairment of the company’s subsidiaries (Rs 217crore).
Demand environment
Broadly, there is no communication of dilution of focus from strengthening the network, expanding the network and 5G rollout. The Company is seeing temporary setup in these areas but for long term most of operators have confirmed it to happen in next few quarters from opex standpoint.
The company is seeing a shift in new work space more towards home which the larger telecom companies are discussing in this direction.The company will see short term impact in its BPS business.
In the enterprise part, the company is seeing discretionary spending is slowing and also the focus on change in growth strategy has got an impact because of focus moving towards digital. The company sees the situation as temporary setup and will continue to become stronger post COVID-19.
No major exposure to travel, transport and oil & segment will be a positive part for the company.
Outlook
Q1 will see more demand led impact.
For communication the company sees optimism for the mid to long term time frame.
Revenue impact will pressurize the margins. Goal is to get back to margin to teens by a year.
The company focusing on-1) Reducing the subcontracting cost;
2) Increased focus all third party cost;
3) Saving coming through travel (at 5 to 3 percent cost);
4) Rationalization of the facilities (tighter synergy of subsidiaries);
5) Various bonus pay and hikes which already the company has taken will support margins.
First Anniversary Offer: Subscribe to Moneycontrol PRO’s annual plan for ₹1/- per day for the first year and claim exclusive benefits worth ₹20,000. Coupon code: PRO365
