Budget 2020

Tech Mahindra Q2 takeaways: BFSI, technology verticals drive revenue growth

NEW DELHI: IT major Tech Mahindra continued the trend of its peers and beat Street estimates for September quarter earnings. However, the growth was in low single digits which could be a cause of worry.

Communications, its biggest business vertical, suffered and revenue from that came down by 5 per cent, while BFSI and technology verticals saw robust growth. The company also announced acquisition of two companies.

Here are key takeaways from the Q2 numbers:

How much did the company earn?
Tech Mahindra posted a 5.27 per cent year-on-year (YoY) fall in net profit at Rs 1,064.60 crore while consolidated revenue increased 3.32 per cent YoY to Rs 9,371.80 crore.

In dollar terms, revenue of the company declined 1.7 per cent YoY to $1,265.40 million. However, the figure increased by 4.80 per cent on a QoQ basis. Ebitda grew 13.46 per cent YoY to Rs 1,703 crore.

Which business segment saw growth?
BFSI and Technology, Media & Entertainment verticals were outperformers. The former which contributes 16 per cent to revenue, saw a growth of 25 per cent in business, while the latter that contributes about 10 per cent to Tech Mahindra’s revenue grew by 18 per cent YoY.

Which business segment did not perform well?
Communications and manufacturing segments did not perform well and revenue growth dropped. Communications that brings nearly 40 per cent of its revenue suffered a drop of 5.8 per cent, while manufacturing vertical that contributes 16 per cent of the revenue suffered 12 per cent YoY drop.

Did the company announce any dividend?
The board of Tech Mahindra proposed a special dividend of Rs 15 per share.

What are the companies it acquired?
Tech Mahindra also announced the strategic acquisition of Momenton, a digital enterprise technology firm, offering consultancy and implementation services, and Tenzing Limited, a technology consulting company.

“Tech Mahindra has acquired 100 per cent equity in both the organizations, and together they will enable digital capabilities, modern cloud-based architecture and transformation for customers in the ANZ (Australia and New Zealand), specifically in financial services,” said the company.

How many clients did it add?
The company added two $20 million plus clients, one $10 million plus clients, four $5 million plus clients and nine $1 million plus clients during the quarter. However, it did not add any $50 million plus clients.

Management’s take:
“Strong execution on both revenue growth and operational metrics has helped to improve our

performance on all fronts. Our cash conversion continues to be robust and we remain committed towards creating value for our shareholders through effective capital return,” said Manoj Bhat, Chief Financial Officer, Tech Mahindra.

The company is one of the least expensive large cap IT companies, trading at 17.41 times its earnings at Rs 948.10. In terms of price to book value, the multiple stands at 3.64. Return on Equity (RoE) stands at 20.50 per cent.