Tech Mahindra moving into top tier

BANGALORE, INDIA: Tech Mahindra's financial results show that the first quarter consolidated net profit of the firm has declined 8.1 percent (year-on-year) to Rs 631 crore.

The firm had posted a net profit of Rs 686.3 crore in the same quarter last year. However, on sequential basis, the net profit grew 2.7 percent from Rs 614.2 crore in the last quarter.

The result is slightly disappointing for Tech Mahindra mainly on two accounts, first due to margin decline on account of BT revenue adjustments and second on its utilization rate during the quarter, which points towards their operational efficiency.

The seasonality of this quarter helped them to grow in Q1. The revenue growth primarily came from Telecom and Manufacturing. Both the vertical scored more than 5pc QoQ growth, while IT, Media and Entertainment vertical had decline during this quarter. Like other major IT service players, their growth was led by American geographies which contribute close to 47pc of Tech Mahindra's revenue and has grown by 8 pc plus.

Tech Mahindra's topline performance is very encouraging as it was on a higher Comviva base and on the other side with a decline of 2.6 million in BT revenues. Infrastructure management Services(IMS) business showed good traction and its Telecom vertical has been growing quarter after quarter, in spite of its elongated sales cycle.

Further, customer mining seems to be working for Tech M, as its top clients' growths were around 6.5pc upward. The top 20 client's contribution is close to 62 pc of its revenue and there are larger deals and network service deals flowing-in.

Coming quarters for Tech M should be stronger as they will realize the revenue from BSAF acquisition from third quarter onwards and also Mahindra Engineering Services (MES) revenue contribution. The firm's management has provided a very strong future quarter of growth for the company, however, the decline in utilization rate to 75pc in Q1 FY2015 will be a concern and management must be looking at it in the coming quarters.

Tech Mahindra's utilization rate are the lowest in comparison to its peers like HCL Tech, TCS, Wipro and Infosys. There is a stronger sales pipeline and good number of client additions likely to come in to most of their deal categories during Q2 and Q3 of FY2015.

"The CyberMedia Research & Service's (CMR) take is that Tech Mahindra has done good post meger integration after it took over Satyam and is well-poised to give tough competition to the established entities in the market as a diversified IT Services player. Though, Telecom and Manufacturing have remained stronghold for Tech M and that contributes heavily towards Tech M's revenue, but its time for them to spread themselves across other verticals and geographies as well. They need to push niche services for segments such as BFSI where it certainly have to fight it out with the established peers."