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Tech Mahindra hemmed in by slowdown in enterprise business

BL Research Bureau

Slowing growth in its enterprise business, along with a fall in margins saw Tech Mahindra Ltd report a net profit of ₹1,133 crore in the quarter ended March 2019, down 6.6 per cent compared to the December quarter of FY19.

Forex hedging related charge and a one-time impact due to exit from some contracts weighed on the company’s margins.

Also read: Tech Mahindra hits over 3-month low on Q4 profit miss

During the quarter, Tech Mahindra reported EBITDA margins of 18.4 per cent compared to 19.3 per cent in the previous quarter. If we were to normalise for the impact of one-time hits during the quarter, the margins came in at 18.7 per cent.

Due to a seasonal slowdown in retail spends by clients, and some deals in the enterprise business being deferred to the new financial year, business slowed during the quarter. Tech Mahindra reported revenues of ₹8,892 crore, down 0.6 per cent sequentially. The slowdown in enterprise business (revenues fell 2 per cent sequentially in US dollar terms) was due to a fall in retail and financial services.

Robust growth

The company’s telecommunication business saw good momentum during the quarter growing by 4.4 per cent in US dollar terms. That’s a third consecutive quarter of healthy growth for the communication business. Telecom makes up nearly 41 per cent of the company’s annual revenues.

Robust growth in digital services saw it contribute 31 per cent of total revenues of 2018-19 of ₹34,742 crore.

Tech Mahindra’s government, defence and digital initiatives performed well, along with 5G services (part of its telecom business). Growth in enterprise business is expected to pick up only after a few deals in the pipeline close in the first half of 2019-20.

During the quarter, Tech Mahindra added two customers in the over $50 million bucket, four in the $20 million and nine in the $1 million bucket. However, the number of customers in the $10 million bucket fell by five, and in the $5 million bucket, by 1. As a whole, the company had 938 active clients, up by three over the previous quarter.

Attrition remained high at 21 per cent for a second consecutive quarter and there was also a fall in the total number of employees during the year by 760 to 1,21,082 during the quarter.

This helped the company’s employee expenses to fall by 4.7 per cent to ₹4,307 crore compared to the October-December quarter. The utilisation of employees, excluding trainees, fell during the quarter to 82 per cent from 83 per cent a quarter ago.

Source: The Hindu