Tech Mahindra in its first quarter earnings missed Street estimates on all fronts. The revenues are 4.1 percent lower quarter on quarter at Rs 13,159 crore versus Rs 13,718 crore in March 2023 ended quarter. CP Gurnani, MD & CEO at Tech Mahindra in an interaction with CNBC-TV18 said "it has been a tough quarter".

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The communications, media and entertainment (CME) industry vertical, which contributes over one-third to total revenues of company, witnessed revenue decline of 8.2 year on year and 9.4 percent quarter on quarter. Other verticals like BFSI and retail, transport and logistics declined by 5.4 percent and 2 percent respectively year on year. Gurnani attributes this to sudden brakes on transformative deals. He adds, "CME clients believe weakness is a temporary blip".

The manufacturing, technology and 'others' verticals revenues grew in the range of 3 to 8 percent year on year.

Further, the IT player took a one-time provision as one of the client faced bankruptcy. However, enterprise business has been status quo while pipelines are reasonably strong.

Tech Mahindra's EBIT margin shrunk to 6.8 percent versus 11.2 percent sequentially. Of the 440 bps margin decline, 50 bps was due to Comviva seasonality, while nearly 2 percent impact was due to revenue decline and 2 percent due to the one-time provision. Tech Mahindra reported the lowest margins among its peers.

On the positive side, the company continues to work on margin levers. The subcontracting costs have been brought down 14-15 percent. Gurnani says, deal pipeline is robust and widespread across verticals. The total contract value is now at $359 million versus $592 million in the March 2023 ended quarter.

The total headcount is down 4,103 on quarter on quarter basis to 1,48,297. However, the attrition eased to 13 percent in Q1FY24 versus 15 percent in Q4FY23 and 22 percent in Q1FY23.

Tech Mahindra shares are down nearly 5 percent in trade on July 27 morning, in reaction to its first quarter results, while Nifty IT is marginally higher. Tech Mahindra has given up all its gains for this week and month. The stock is higher by just 8 percent year to date. Several brokerages have given the stock a ‘sell’ rating and reduced the target price.

First Published:Jul 27, 2023 9:34 AM IST