Tech Mahindra Q2 net down 4% YoY to Rs 1,285 cr on supply side pressure

Profit was up sequentially, however; Revenue rose 20.7% YoY and 3.3% QoQ, driven by growth in CME segment and the US market

IT services major Tech Mahindra’s net profit for Q2 FY23 was down 4 per cent at Rs 1,285 crore due to supply side pressure. But profits grew 13.6 per cent on a quarter-on-quarter basis.

Revenue for the quarter at Rs 13,129 crore was up 20.7 per cent YoY and grew 3.3 per cent sequentially, driven by growth in CME (communications, media and entertainment) and the US geography, which grew by 10.3 per cent and 18.4 per cent respectively.

The company also stated that it signed net new deals worth $716 million during the quarter. The TCV was lower than the $802 million signed in preceding quarter and also lower than the $750 million TCV signed in Q2FY22.

"While market conditions evolve and supply-side challenges continue, we will strengthen our differentiated offerings to help customers in their transformation journey through our integrated & new-age solutions," said C P Gurnani, managing director and CEO, Tech Mahindra.

He also cautioned on Europe's growth going ahead. “Europe is a concern both from the currency movement and demand. We have seen customers telling us that sales are down and there is stress.”

The management was, however, confident that the US and 5G spends will continue to grow along with the BFSI segment. On a constant currency basis, CME grew 20 per cent YoY and enterprise grew 14.4 per cent.

Tech Mahindra also managed to see its attrition go down. For the Q2 FY23 the attrition was at 20 per cent. In Q1 FY23 it was 22 per cent. The company added 5,877 employees in Q2, taking its total employee base at 163,912.

ICICI Direct Research in its first cut said results were positive. “The company’s revenue growth was better than our estimates for Q2, however as indicated by the company, could have been impacted by exit of some low margin portfolios. TCV of net new deals number continues to be robust as it is 7th consecutive quarter of US$700mn+ net new wins which would provide future revenue visibility.  LTM Attrition declined quite sharply in the last couple of quarters, which along with lower subcontractor costs are expected to support margins in the medium term.  Net addition also remained strong at around 6K+ for the third consecutive quarter. We would come out with an update post the conference call.”