Tech Mahindra Q1 results: Net profit up 23% on cost action; still a miss

India’s fifth-largest IT services company Tech Mahindra on Thursday reported a 23 per cent year-on-year (Y-o-Y) jump in its net profit for the first quarter of 2024-25. Strong cost measures, along with a drop in subcontracting cost by almost 200 basis points, helped the company script a healthy profit margin of Rs 851 crore.

Bloomberg had pencilled in Rs 873.6 crore net profit, a tad above what the IT firm delivered.

Sequentially, the profit was up by 28.8 per cent. Meanwhile, revenue for the first quarter of financial year 2025 (Q1FY25) came in at Rs 13,005 crore, down 1.2 per cent Y-o-Y. But it grew one per cent sequentially.

Here the company beat the Bloomberg estimates, which had forecast first quarter revenue at Rs 12,966.5 crore.

The firm’s margin for the quarter came in at 12 per cent, up 190 basis points Y-o-Y. The Tech Mahindra stock ended the trading day at Rs 1,540, up 0.44 per cent. 

Selling, general, and administrative expenses (SG&A) for the quarter was down. The company also has moved its salary hikes to the second half of the year. Mohit Joshi, CEO and MD of the firm was upbeat. He said it was the quarter of turnaround.

“This is the first full quarter since we reconfigured the organisation structure. I am very happy with the progress that we have made in aligning into the new service lines,” said Joshi on the firm’s restructuring efforts.

On the macro, however, Joshi sounded similar to his peers.

“I do not think that the situation has changed dramatically from the last three months. We are seeing a slightly more stable demand environment. I do not think there is a massive change or upswing from demand perspective,” Joshi said.

For the first quarter, the company signed a total contract value of $534 million, up from $500 million signed in Q4 FY24.

In terms of growth, communications, hi-tech and media and BFSI were slow and saw drop in growth by 9.9 per cent, 3.5 per cent and 1.2 per cent on a year on year basis, respectively. However, on a sequential basis growth was broad based with all verticals growing.

Only communication was down 1.9 per cent. In terms of geography, on a year-on-year basis all the geographies were down. The US was down 0.6 per cent, Europe was down 7.3 per cent and the rest of the world was down 2.1 per cent.

Pritesh Thakkar, research analyst, Prabhudas Lilladher in a note said, “Beat on all front led by strong cost measure, courtesy BPO.”

Rohit Anand, Chief Financial Officer, Tech Mahindra, said, “The Q1 results are a positive start both for the current turnaround year as well as for our medium-term strategy. As we mentioned in our strategic priorities, our focus continues to be on investing in the business for long term sustainable performance.”

 The company added 1,000 freshers in Q1 and said that it will take a call on salary hikes in the second half of this fiscal year. At the end of Q1 the total headcount of the company was 147,620. Attrition at 10 per cent was flat on a quarter-on-quarter basis.