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In a quarter that has been mired by lockdown imposed due to the Covid-19 pandemic, Tech Mahindra has come out worse off than its peers like TCS, Infosys and Wipro. Tech Mahindra saw the worst fall in consolidated net profit.
A big reason for the fall in Tech Mahindra’s consolidated net profit during the quarter ended March 2020 (down 30 per cent Q-o-Q to ₹804 crore) was an impairment provision of ₹218 crore on goodwill of one of its past acquisitions. Even if we exclude the impairment provision, the net profit would have fallen by 11 per cent (₹1,021 crore excluding impairment).
This points to a spike in costs, which the company admitted it is working to curb. This can be seen in the subcontracting costs falling 19 per cent, but there was a nearly 20 per cent spike in other expenses that put paid to the costs cutting efforts. As a result, Tech Mahindra’s earnings before interest margins fell by 220 bps to 10 per cent.
The company’s revenues for the quarter ended March 31 was down 1.7 per cent sequentially to ₹9,490 crore because all but one of the industries it serves saw sequential fall in revenues. The dollar revenues came in at $1.29 billion, falling 4.3 per cent.
For the full financial year, the company’s net profit came in at ₹4,033 crore (down 6.2 per cent Y-o-Y) on revenues of ₹36,868 crore (up 6.1 per cent Y-o-Y). Dollar revenues for the year came in at $5.2 billion (up 4.3 per cent Y-o-Y)
Tepid revenues
The fall in revenues for the quarter ended March 31 was mainly due to 8.4 per cent sequential fall in revenues (in dollar terms) of its mainstay communications vertical. This vertical makes up nearly 41 per cent of its total revenues.
The only vertical that had some positive for the company was BFSI which saw revenue (in dollar terms) rise 11 per cent sequentially. This gave some cushion to its revenues during the quarter. Although the company bagged orders worth $513 million during the quarter, the orders booked did dry out at the end of March coinciding with the lockdown across the world.
The management is still confident that the demand in the communication vertical will continue to remain strong going forward as top telecom firms will continue to strengthen their networks and ramp up their 5G services. How soon this pans out is going to be key for Tech Mahindra as communications makes up a huge chunk of its revenues.
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