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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.

 


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    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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