Result Analysis: Tech Mahindra Limited (CMP: Rs.1,004) |
Result Update: Q4FY23 |
Tech Mahindra is one of the leading provider of consulting-led integrated portfolio services to customers around the globe. It also provides comprehensive range of IT services, including IT enabled services, application development and maintenance, consulting and enterprise business solutions, extended engineering solutions and infrastructure management services to a diversified base of corporate customers in a wide range of industries including insurance, banking and financial services, manufacturing, telecommunications, transportation and engineering services.
Stock Details |
Market Cap. (Cr.) |
97825.42 |
Equity (Cr.) |
487.08 |
Face Value |
5 |
52 Wk. high/low |
1297 / 944 |
BSE Code |
532755 |
NSE Code |
TECHM |
Book Value (Rs) |
275.46 |
Sector |
IT – Software |
Key Ratios |
Debt-equity: |
0.11 |
ROCE (%): |
23.78 |
ROE (%): |
21.76 |
TTM EPS: |
53.58 |
P/BV: |
3.65 |
TTM P/E: |
18.74 |
Result Highlights:
- Tech Mahindra posted muted results in the March 23 quarter with Revenue decrease of -0.1% QoQ to Rs.13,718 cr. and Net profits decrease of 12.5% QoQ to Rs.1,125 cr. majorly due to the macro headwinds and decline in discretionary spending.
- EBIT of the company declined by 7% QoQ to Rs.1,530 cr. and EBIT margin declined with 80 bps to 11.2% compared to previous quarter.
- Among industries communication and manufacturing segments’ revenue% have grown up by 30bps and 20bps respectively while Retail, Transport & logistics segment revenue % de-grew by 90bps. BFSI and Technology segment were flat on QoQ basis in the quarter.
- Across geographies, Europe revenue% increased by 90 bps while America de-grew by 10 bps on QoQ basis. While revenue% from Rest of the world showed de-growth of 80 bps on QoQ basis.
- Net New Deal wins of the company has dropped significantly (26%QoQ down) due to the cautious stands of the client to USD 0.59bn in the quarter vs USD 0.79bn of Q3FY23.
- Attrition rate has improved by 200 bps from 17% in the December 22 quarter to 15% in this quarter. Company has reduced its total headcount by 4,668 QoQ, now counts to 1,52,400.
- The board of the company has recommended a final dividend of Rs.32/share.
Financial Performance:
Shareholding Pattern:
Particulars (In %) |
Q4FY23 |
Q4FY22 |
Promoters Group |
35.18 |
35.26 |
FIIs |
27.9 |
35.21 |
DIIs |
25.85 |
18.05 |
Public |
10.43 |
10.55 |
Others |
0.64 |
0.93 |
Management Commentary:
- The management highlighted the macro environment remains weak considering slower decision making and cuts in discretionary spending and will impact the growth in H1FY24 as well.
- Some of the discretionary spends and transformation projects are going through additional lenses before getting released.
- Management informed that the client specific issues in top 5 clients are bottoming out and is expected to stabilize in the near term.
- Company stated that cloud, 5G and AI are providing better future growth opportunities.
Outlook:
Tech Mahindra has subdued performance in Q4FY23 with 0.1% de-growth in the revenue and 12.5% de-growth in the PAT on quarterly basis. Deal decisions have been delayed due to uncertain macros which has resulted in lower deal wins. Revenues from top 5 clients have dropped significantly over the past year. Near term headwinds still prevail for the IT companies on the back of recession fears in Europe and America. Hence, we remain negative on the stock for the short term.
Results:
Particulars (In Rs. Cr.) |
Q4FY23 |
Q3FY23 |
Q4FY22 |
QoQ% |
YoY% |
FY23 |
FY22 |
YoY% |
Revenue from Operations |
13,718 |
13,735 |
12,116 |
-0.1% |
13.2% |
53,290 |
44,646 |
19.4% |
Other Income |
306 |
247 |
320 |
23.6% |
-4.5% |
965 |
1,112 |
-13.2% |
Total Income |
14,024 |
13,982 |
12,436 |
0.3% |
12.8% |
54,255 |
45,758 |
18.6% |
Employee Benefit Expenses |
7,192 |
7,055 |
6,048 |
1.9% |
18.9% |
27,692 |
22,286 |
24.3% |
Employee benefit Expenses as % of Sales |
52.4% |
51.4% |
49.9% |
110 bps |
250 bps |
51.96% |
49.92% |
200 bps |
Subcontracting Expenses |
1,936 |
1,974 |
1,907 |
-1.9% |
1.5% |
8,000 |
6,957 |
15.0% |
Depreciation & Amortisation Expense |
490 |
498 |
484 |
-1.6% |
1.2% |
326 |
163 |
100.2% |
Other Expense |
2,570 |
2,562 |
2,074 |
0.3% |
23.9% |
9,569 |
7,383 |
29.6% |
EBIT |
1,530 |
1,646 |
1,604 |
-7.0% |
-4.6% |
6,072 |
6,500 |
-6.6% |
EBIT Margin |
11.2% |
12.0% |
13.2% |
-80 bps |
-210 bps |
11.4% |
14.6% |
-320 bps |
Profit After Tax (PAT) |
1,125 |
1,285 |
1,545 |
-12.5% |
-27.2% |
4,831 |
5,566 |
-13.2% |
PATM (%) |
8.2% |
9.4% |
12.8% |
-1.2% |
-4.6% |
9.07% |
12.47% |
-340 bps |
EPS (in Rs.) |
12.67 |
14.7 |
17.09 |
-13.8% |
-25.9% |
54.8 |
63.32 |
-13.5% |
Segment Revenue (In Rs. Cr.) |
Q4FY23 |
Revenue % |
Q3FY23 |
QoQ% |
Q4FY22 |
YoY% |
IT |
11,797 |
86.0% |
11,800 |
-0.02% |
10,593 |
11.37% |
BPO |
1,921 |
14.0% |
1,935 |
-0.72% |
1,524 |
26.06% |
Total |
13,718 |
100% |
13,735 |
-0.12% |
12,116 |
13.22% |
Geography Revenue % |
Q4FY23 |
Q3FY23 |
Q4FY22 |
QoQ |
YoY |
America |
49.6 |
49.7 |
48.3 |
-10 bps |
130 bps |
Europe |
25.3 |
24.4 |
26.4 |
90 bps |
-110 bps |
Rest of the World |
25.1 |
25.9 |
25.3 |
-80 bps |
-20 bps |
Segment Revenue % |
Q4FY23 |
Q3FY23 |
Q4FY22 |
QoQ |
YoY |
Communications, Media & Entertainment |
40.10% |
39.80% |
40.60% |
30 bps |
-50 bps |
Manufacturing |
15.90% |
15.70% |
14.90% |
20 bps |
100 bps |
Technology |
10.30% |
10.30% |
9.30% |
– |
100 bps |
Banking, Financial Services & Insurance |
15.90% |
15.90% |
17.40% |
– |
-150 bps |
Retail, Transport & Logistics |
7.60% |
8.50% |
7.60% |
-90 bps |
– |
Others |
10.20% |
9.90% |
10.20% |
30 bps |
– |
Source: Company website, EWL Research
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