Tech Mahindra Q2 profit slips 5% to Rs 1,065 crore even as margins increase

Tech Mahindra on Friday reported 5.27 per cent decline in September quarter net profit at Rs 1,064.6 crore, even as profit margins widened sharply. Revenue of the Mahindra Group company grew 3.32 per cent over last year and 2.32 per cent over the preceding June quarter to Rs 9,371 crore. The operating margin improved sequentially by over 4 percentage points to 14.2 per cent.

The other income came down to Rs 117.5 crore from the year-ago period’s Rs 216.3 crore majorly on the back of a Rs 35.6 crore loss booked on foreign exchange as against gains of Rs 49.6 crore in the year-ago period.

Company’s Managing Director and Chief Executive C P Gurnani said the company is happy with the results and attributed the show to a re-purposing exercise undertaken in the face of the COVID-19 pandemic. Explaining the margin gains, chief financial officer Manoj Bhat told reporters that there was 1.30 per cent gain on account of solving supply side difficulties which were witnessed in June quarter while another 1.60 per cent gains came from operational efficiencies like higher utilization.

When asked if the company is confident of maintaining the margins, he said there is a possibility of expanding the margins and directionally the number will go up, even though there can be a quarter of a dip as well due to aspects like furloughs.

Gurnani said at present over 25 per cent of its over 1.2 lakh employees have started to work from offices following necessary protocols, while Bhat said over a longer term, the company feels a fourth of its employees will be working from home. The company signed USD 421 million of new deal wins on a net basis, which Bhat said is at par with the pre-COVID-19 period.

Among the business segments, core communications business revenue grew 3.2 per cent on a sequential basis, while the enterprise business rose 5.9 per cent.

Share of revenue from the largest market , the US, which is imposing greater restrictions on Indian IT companies on the visa front, declined to 48.4 per cent as against 49.3 per cent in June quarter.

From a business outlook perspective, Bhat said the deal funnel is “very robust” with new wins going back to pre-pandemic levels, while Gurnani said the focus on 5G, cloud and artificial intelligence is working out well for the company. The company will be giving pay hikes to its junior employees in the March quarter, while for the senior employees, the hikes will be done in calendar year 2021, Gurnani said.

Two recent acquisitions will cost the company USD 29 million and USD 7 million, its head of corporate development Vivek Agarwal said. Agarwal said in both the acquisitions, which were closed during the quarter, the company has paid only 65 per cent of the overall amount and the balance will be paid in three years once revenue milestones are met, and added that the founders of both companies are with Tech Mahindra.

Its number of overall employees went down marginally during the quarter, which was attributed to normal attrition by Bhat.

The Tech Mahindra counter gained 1.19 per cent to close at Rs 848.10 apiece on BSE, as against a 0.31 per cent increase in the benchmark.