Q1 Results: Tech Mahindra’s Profit Declines But Meets Estimates

Tech Mahindra Ltd.’s profit met estimates even as it fell for the first time in five quarters.

The software services provider reported a net profit of Rs 897.8 crore in the three months ended June, a 26 percent decline from the previous quarter, according to its exchange filing. That compares with the Bloomberg consensus estimate of Rs 896 crore. The company had reported a deferred tax gain of Rs 69.1 crore in the base quarter.

Revenue rose 2.8 percent sequentially to Rs 8,276.3 crore. Analysts tracked by Bloomberg expected the revenue in constant-currency terms at Rs 8,202 crore. Revenue in dollar terms fell 1.6 percent from the previous quarter to $1,224 million.

Operational performance was marginally higher than estimates. Earnings before interest and tax fell 1.4 percent quarter-on-quarter to Rs 1,045 crore. EBIT margin contracted to 12.6 percent from 13.2 percent during the period.

The revenue and EBIT margins were in line with expectations, Milan Desai, research analyst at IIFL Securities, told BloombergQuint in an interaction. “The margins were driven by better executions and addition of IT services.”

The overall business growth trajectory for 2018-19 is on track, CP Gurnani, managing director and chief executive officer of Tech Mahindra, said in a statement.

While the business seasonality has affected the current quarter, a change in our strategy with a strong focus on digital transformation is keeping the business buoyant, he said. “The changing demand landscape for next-generation technologies is going to fuel the digital business.”

Shares of the the company ended 2 percent higher at Rs 658 apiece ahead of the earnings compared with a 0.67 percent decline in the Nifty IT Index.

Vineet Nayyar To Retire

The company also announced that Vice-Chairman Vineet Nayyar has decided to retire.

“I would like to thank Vineet Nayyar for his leadership, guidance and immense contribution towards Tech Mahindra’s journey as a global digital transformation leader for over a decade,” Gurnani said. “Although Vineet has decided to retire, he will continue to be our guiding force.”

He added, “I would also like to welcome on board our new chief people officer Harshvendra Soin.”

Here’s what brokerages take on Tech Mahindra’s June quarter performance:

CLSA

• Upgraded to ‘Underperform’ from ‘Sell’; raised price target to Rs 650 from Rs 635.
• Revenue beat led by enterprise as telecom stays soft.
• Margin recovery comes to a halt.
• Need to watch for growth recovery.
• See limited earnings growth potential and margin upside.

Macquarie

• Maintained ‘Neutral’; raised price target to Rs 700 from Rs 670
• June quarter results were mixed bag with miss on revenue and small beat at EBIT margin.
• Telecom business continues to be a drag.
• 5G-related spend is still some time away.
• Raise EPS estimates to factor in weaker rupee.

Investec

• Maintained ‘Buy’ with a price target of Rs 786.
• June quarter’s revenue and EBIT were ahead of estimates.
• Decline in revenues in telecom segment has been sharper than expected.
• Expect EBIT Margin performance to improve through 2018-19.
• Expect long awaited improvement in telecom appears to be finally here.