News Analysis

Slowdown in enterprise business hems in Tech Mahindra

Vivek Ananth | Updated on May 22, 2019 Published on May 22, 2019

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, down 6.6 per cent from the October-December quarter. Forex hedging-related charges and a one-time impact due to charges related to some contracts the company had exited weighed on its 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 with 19.3 per cent a quarter ago. If we were to normalise for the impact of one-time items 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, the enterprise business slowed during the quarter.

Tech Mahindra reported revenues of ₹8,892 crore, down 0.6 per cent sequentially. The slowdown in the enterprise business (revenues fell 2 per cent sequentially in US dollar terms) was due to a fall in retail and financial services.

However, the telecommunications business saw good momentum during the quarter, growing 4.4 per cent in US dollar terms. That’s a third consecutive quarter of healthy growth for the communications business. Telecom makes up for nearly 41 per cent of the firm’s annual revenues.

Digital growth

Robust growth in digital services saw it contribute 31 per cent of the total 2018-19 revenue of ₹34,742 crore. Tech Mahindra’s government, defence and digital initiatives performed well, along with 5G services (part of its telecom business).

At the end of the January-March quarter, digital accounted for 34 per cent of total revenues. Growth in the 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 over-$20-million and nine in the over-$1-million bucket.

However, the number of customers in the over-$10-million bucket fell by five, and by one in the over-$5-million bucket. As a whole, the company has 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 by 760 to 1,21,082.

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

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