Tech Mahindra beats Street estimates, pre-tax profit up 33% to Rs 1,283 cr

IT services firm Tech Mahindra on Monday reported profit before tax (PBT) of Rs 1,283 crore, up 32.9 per cent sequentially but flat year-on-year (YoY), according to an exchange filing. 

The Mahindra group firm beat estimates for the June 2020 quarter (Q1FY21) thanks to lower operating costs, even as the firm remained optimistic on large-scale Cloud migration and 5G opportunities in the medium term.

The Pune-headquartered firm reported Rs 972 crore in consolidated net profit for Q1, also flat YoY. Sequentially, it rose 20.9 per cent. Revenue stood at Rs 9,106 crore, up 5.2 per cent YoY, even as it declined 4 per cent sequentially. In dollar terms, revenue came in at $1,207 million, a 6.3 per cent sequential drop in constant currency (CC) terms.

Operating margin expanded by 10 bps to 14.3 per cent on a sequential basis. New deal wins stood at $290 million during the quarter under review.

“The deal pipeline is probably the strongest I have seen in the last three years, but I’m not celebrating it. Whenever there is uncertainty in the environment, deal closure takes longer,” said C P Gurnani, MD and CEO of Tech Mahindra, in a post-earnings conference call.

He added that the Covid shock in Q1 was less than what was budgeted. The management also said it was “happy” with the progress made on 5G. 

Numbers beat expectations on the profit front. Axis Securities, in a pre-earnings research note, had estimated net profit to slip 10.9 per cent sequentially and 2 per cent YoY to Rs 910 crore. It also expected revenue to decline 5.5 per cent sequentially to Rs 8,970 crore. Headcount stood at 123,416 at the end of the quarter — registering a net decline of 1,820 employees sequentially. 

“The fall in (headcount) numbers is due to natural attrition and performance-based reviews. On the productivity front, we have made investments in the command and control centre that allows us to monitor programmes seamlessly. About 90 per cent of employees in the BPS segment are working from home, with customers appreciating us for beating expectations,” said Manoj Bhat, CFO of Tech Mahindra.

This comes amid larger IT peers predicting that uncertainties arising out of the outbreak have bottomed out. TCS said it may see break-even and reach pre-pandemic revenue levels (in rupee terms) from the December quarter. Infosys forecasts CC growth in revenue of 0-2 per cent in FY21.