Tech Mahindra lags behind on revenue, races ahead on deals
PremiumEmkay Global Financial Services said deal wins have crossed the $1 billion-mark for the first time since Q3FY20
Tech Mahindra Ltd’s March quarter (Q4FY21) earnings have disappointed on some key parameters. On a sequential basis, the IT services provider’s revenue growth in constant currency terms was a mere 0.7%, much lower than the 2.5-4% growth reported by tier-1 peers.
Analysts were estimating a growth of 1.5-2% for Tech Mahindra. The communications vertical is responsible for the company’s muted performance.
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3 min read . 26 Apr 2021In a post-earnings conference call, the management said Tech Mahindra was in a repair phase in FY21 and now that the phase is complete, verticals such as communications and enterprise are starting to show improvement.
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Forex losses and higher tax provisions weighed on its Q4 adjusted net profit, which was 17% lower than consensus estimates at ₹1,081.4 crore.
For the March quarter, the company’s Ebit margin stood at 16.5%, remaining flat sequentially, but was a tad higher than expected, aided by operational efficiencies. Ebit is earnings before interest and tax.
On the bright side, new deal wins are encouraging for investors in the company’s stock. Tech Mahindra added net new deals worth $1.04 billion in the March quarter versus $455 million in the December quarter.
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Analysts at Emkay Global Financial Services Ltd said deal wins have crossed the $1 billion mark for the first time since Q3FY20.
The company’s management said that deal wins in Q4 have been much better than the quarterly deal-win run-rate of $450 million and gives the confidence of double-digit organic growth going into the next fiscal year.
Akin to peers, the company also saw an increase in its attrition rate from 12% in the previous quarter to 13% in the March quarter.
The management said it has started giving hikes starting 1 April. It should be noted that Tech Mahindra had delayed salary hikes between January 2020 and March 2021.
Analysts had cautioned that a further delay in salary increases would lead to higher attrition as demand for talent increases in the sector. The management said that hiring will increase by 8-10% in the coming quarters.
Meanwhile, so far in this calendar year, Tech Mahindra’s shares have given negative returns of around 1%, underperforming the Nifty IT index, which gained by around 6%.
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