India’s Tech Mahindra beats July-Sept revenue view

Tech Mahindra, an Indian IT services company based in Bengaluru, exceeded revenue expectations in the quarter ending in September. The growth was driven by expansion in European and other international markets, along with a strong performance in the banking, financial services, and insurance (BFSI) sector.

Tech Mahindra’s revenue for the financial second quarter surged by 3.49 percent to reach 133.13 billion rupees ($1.58 billion), outperforming analysts’ expectations of 131.9 billion rupees, as reported by LSEG data. Despite this positive growth, the company still faces challenges in its communications division, which constitutes a significant portion of its total revenue. Additionally, there are concerns regarding increased borrowing. by LSEG.

Tech Mahindra continued to see weakness in its communications segment, which contributes a third of overall revenue.

Higher borrowing costs along with macroeconomic and geopolitical risks have prompted clients to curb their spending on discretionary tech spending.

“Our key telecom clients continue to prioritise cost savings and their spending on discretionary projects is constrained,” CEO Mohit Joshi said in a post-earnings call. Joshi said there were client-specific pressures in the US in this segment.

The Pune-based firm registered revenue growth of 4.5 per cent in its BFSI segment, and 2.4 per cent in its Hi-Tech and Media segment, with Europe up 4.1 per cent and its the Rest of World market growing 9.7 per cent.

Net profit increased 153 per cent to 12.5 billion rupees ($149 million), aided by the one-time gain by the sale of land, and along with furniture and fixtures, leading to other income of 5.2 billion rupees.

Tech Mahindra’s order bookings fell to $603 million from $640 million in the same quarter last year.

In April, the firm unveiled a three-year turnaround plan aimed at increasing revenue and doubling its operating margin to 15 per cent by fiscal 2027 after multiple quarters of slowing growth and a significant decline in its margins.

Joshi said this was the early stages of turnaround for the business, and that they expect “to see some volatility in the telecom and the BFSI portfolios” going ahead.

The results are a signal towards a positive trend, said Gaurav Parab, a principal research analyst at NelsonHall.

“Mohit Joshi’s strategic initiatives around restructuring delivery, focussed account management, and margin improvements are now taking root, although significant outcomes will take a couple of quarters more,” he said.