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| Tech Mahindra: Forex gains |
| Vishal Chhabria / Mumbai Oct 21, 2009, 00:25 IST |
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The September 2009 quarter results of leading IT players suggest that the global telecom industry is not out of the woods. Indicatively, Infosys and TCS‘ telecom segments’ share in overall revenues posted a decline of 60-70 bps sequentially — even on an absolute basis, their telecom-vertical revenues were lower sequentially. Given the muted outlook for the telecom sector, the topline and operating performance of Tech Mahindra, which derives 60 per cent from Europe and about 50 per cent from its major client, British Telecom (BT), is reasonably good.
 For the September 2009 quarter, Tech Mahindra reported a revenue growth of 2.6 per cent to Rs 1,142 crore on a sequential basis. In spite of a decline in BT’s share in the overall pie, the sixth consecutive decline in revenue in as many quarters, the better results were possible, led by increased business from other existing clients like AT&T and also higher traction in the BPO business.
For instance, revenues generated from BT were down 1.4 per cent, while revenues from other clients grew by 6.8 per cent in the same period. Going ahead, the management says there is higher certainty regarding business volumes from BT, as the company gave some upfront discount for minimum volume commitment. Second, as Europe is still facing pressure, the company intends to improve its base in emerging markets to boost growth rates.
On the operational level, Tech Mahindra was able to arrest the decline in margins seen in the past two quarters. Its margins were up about 40 basis points to 25.6 per cent during the September quarter. Even as it effected wage hikes of 2-6 per cent, in line with recent industry trends and helping keep attrition levels in check, it was able to churn out more from its workforce, given that utilisations were up 400 basis points to 75 per cent. Lower selling expenses also helped.
Thereafter, favourable currency trends boosted other income. The company posted forex gains of $5 million as against a loss of $11 million in the June 2009 quarter. Some of these gains were offset by higher interest costs, which the company incurred for its Satyam Computer acquisition. Net profits, thus, were up 28 per cent sequentially. But, since it has refinanced Rs 1,150 crore out of Rs 2,179 crore debt, expect interest cost to decline going ahead. At Rs 941, the stock is trading at 13.5 times its 2010-11 earnings.
With inputs Ram Prasad Sahu and Sarath Chelluri
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