Tech Mahindra Results: Tech Mahindra Q2 Results (2021-22) Date & Earnings

Profit decline: IT firm Tech Mahindra reported a 1% decline in its net profit for the quarter ended September at Rs 1,338.7 crore as against Rs 1,353.2 crore in the last quarter. The profit is in line with analyst estimates of about Rs 1,358.3 crore. On a yearly basis, net profit rose 25.8% from 1064.60 crore in the same quarter last year. 

Revenue rises: Revenue for the July-September quarter rose 7% sequentially to Rs 10,881.3 crore compared to Rs 10,197.6 crore last quarter. Analysts had earlier estimated a profit of about Rs 10,662.5 crore. On a yearly basis, revenue rose 16.1% from Rs 9,371 crore in the same quarter last year. The revenue increase was helped by acquisitions and growth in enterprise and communication segments. In US dollar terms, the revenue increased by 6.4% to $1,472 million. 

America contributed 47.8% of total revenues and grew by 8.9% in the quarter. Europe contributed 25.9% and increased by 1.6%, while ROW contributed 26.3% to total revenues and delivered a sequential growth of 7%.

BPO business reported revenue of Rs 1,306 crore, an increase of 10.5% from Rs 1,189 crore reported in the previous quarter and an increase of 37.1% from Rs 953 crore reported in the same quarter last year.

Operating margins increased: The operating performance of the company strengthened during the quarter sequentially, as EBITDA increased 6.3% to Rs 1,995 crore from Rs 1,876 crore last quarter. Net margin for the company declined by 100 bps on a sequential basis to 12.3%.

New deals: The company got net new deals worth $ 750 million compared to $815 million in the previous quarter. Tech Mahindra added 65 new clients in July-Sep quarter taking the number of active clients to 1,123.

Acquisition: The company announced the acquisition of Lodestone, a leading digital engineering quality assurance provider for new-age digital companies. The acquisition of Lodestone is to strengthen digital capabilities and provide enhanced and comprehensive transformation services to their customers globally. 

Headcount and Attrition: The headcount in the company stands at 1,41,193, increased by 14,930 quarter-on-quarter. Attrition for the quarter stood at 21% while the utilisation levels were at 87%. Supply-side pressures in terms of hiring and talent retention caused the employee cost to rise 5% on a sequential basis and by 12.2% .

Dividend - The company has declared a special dividend of Rs 15 per share and has fixed 5 November as the record date and will be paid on 22nd Nov.

Tech Mahindra Q2 results review: 

Tech Mahindra has reported a strong set of numbers for the Jul-Sep quarter, inline with analyst estimates. The company has witnessed strong traction across all key markets as they invested in digital capabilities through strategic partnerships like its recent acquisition of Lodestone. The company's huge exposure to the Communications vertical remains a potential opportunity as the company is seeing traction in 5G investments. Improved capital allocation will ensure further growth in key segments.The company remains committed to operational efficiency and will continue to create value to shareholders through efficient capital return.

Brokerage View: 

Brokerages continue to stay on the sidelines on Tech Mahindra, as they see its strong business performance balanced with elevated operational risks in a supply constrained environment. They expect a gradual improvement in EBIT margin, given the levers around productivity and cost optimization. However, elevated operating metrics and supply-side pressures remain a risk to the margin estimates. Management commentary on revenue momentum and deal flow indicates that FY22 will likely see Tech Mahindra record organic revenue growth significantly ahead of expectations.

Of the 49 analysts tracking the company, 42 maintain 'buy', six suggest 'hold' and one recommends a 'sell'. The average of analyst price targets compiled by Bloomberg implies an upside of 2.9%.