Tech Mahindra PAT up 20.5% y-o-y for Q1 FY17; down 12.5% sequentially

Revenue rose 10% to Rs 6,921 crore, compared with the corresponding quarter last year

The first quarter numbers of Tech manhindra, India’s fifth largest Information technology (IT) services provider were in line with estimates but its margins disappointed due to high visa costs and the cyclical nature of its business.

It posted a consolidated profit after tax (PAT) of Rs 750 crore for the quarter ended June, up 20.5 per cent over the year-ago period. Revenue rose 10 per cent to Rs 6,921 crore.

An analysts’ poll by Bloomberg had estimated the company to post a net profit of Rs 736 crore, with a revenue of Rs 6,900 crore.

Sequentially, PAT went down by 12.5 percent, while revenue rose marginally by 0.5 per cent. While operating margins were up 13.7 per cent to Rs 1,029 crore over last year, it fell by 10.5 per cent sequentially.

Net margins at around 12 per cent were the lowest in recent quarters.

Vineet Nayyar, vice-chairman, Tech Mahindra, said the company had a steady quarter despite seasonal weakness in mobility business. Margins were impacted by higher visa costs for H1B1 visas and cyclically slower growth in Comviva.

C P Gurnani, managing director & chief executive officer, Tech Mahindra said. “Our business has done well on several parameters such as large client growth, digital wins and strong cash flows. Automation and delivery excellence are two key focus areas for the year going forward”. "We have seen huge success in transforming from an IT company to a DT (digital transformation) company. Deal flow has improved dramatically. We won three large deals in the quarter, one each in BFSI, retail and communication."

Vertical growth was led by BFSI, Healthcare and Retail. The verticals which saw flattish growth included Aviation, Energy and Manufacturing. Geographically, the growth was led by the US, which grew 5.6 per cent sequentially, while the Europe remained flat. Rest of the world saw good growth with top accounts seeing robust growth, said Gurunani.

"Year on year margins have taken a hit primarily because of its large size, the swing from Comviva was greater than what we expected, and some of the acquisitions in network services have not done as well as they did last year," said Manoj Bhat, Deputy CFO at Tech Mahindra during the analyst call. "Growth in enterprise segment is consistent, we are seeing momentum in the space, while in the core communication business momentum is coming back."

Over the last quarter, the company said, its deal funnel grew 20 percent, with more large and medium deals coming in. Most of the deals are on newer technology, operational transformation and digital transformation.

The company said it won 11 new deals with the total contract value of $300 million.

Total headcount stood at 107,216 as of June 30, with an addition 1,784  professionals during the quarter. Cash and Cash equivalent for the company stood at Rs  5,747 crore as of June 30, 2016, while the active client count stood at 818 in the first quarter of FY17.

The company announced Earnings per Share (EPS) of Rs 8.59 for the quarter ended June 30, 2016.

The results came a little after markets closed on Monday. The Tech Mahindra stock closed with gains of 0.62 per cent at Rs 489.70.