Key take away from the call

The company continues to be focused on ESG. Very focused on employees and their families. The company has also announced the appointment of wellness officer during the quarter because the covid wave -2 created a kind of distress. The initiative taken by the HR and the wellness officer proved that the company cares for its customers, society, community and more importantly the company cares for its employees and employee families.

Revenues of the company stood at USD 1383.6 million a growth of 4.1% QoQ and in constant currency terms a growth of 3.9% QoQ. In Rupee terms revenue for the quarter stood at Rs 10,198 cr.

The company witnessed an all-round performance and growth across all key markets and all the industry sector verticals.

The company's communication, media and entertainment business grew by 3.2% in spite of seasonal decline in mobility business.

Enterprise business grew by 4.7% with key verticals like manufacturing, high-tech, technology driving the growth.

EBIT for the quarter stood at USD 209 million v/s USD 219 million for Q4FY2021. Q1 is the weakest quarter for the company due to salary increase and seasonality of mobility business.

Margins declined by 130 bps in Q1F2022 v/s Q4FY2021 impacted by salary hike, visa cost, seasonal decline in mobility business and higher sub contract cost. This was partially offset by operating leverage and operating efficiency, lower SGA over the last quarter.

EBIT margin stood at 15.2% for the quarter. The company will look forward to improve the margins in the coming quarter. There are tailwinds which will offset more than the head winds. Tailwinds include growth being very positive, operating leverage due to automation and digitalization to give upside. Also, offshore and decline in SG&A cost. Headwinds include supply side talent crunch which will increase employee expenditure and travel coming back.

Net Profit after tax stood at 183.2 million v/s 140.7 million in Q4. It is primarily led by higher other income of USD 34.4 million, USD 34.4 million coming from surplus invested as well forex gain which the company had in the quarter. Also, PAT was higher due to lower tax rate which stood at 24% for the quarter as against 32% in Q4 which had 2 one offs due to higher tax at the company's subsidiaries.

The tax rate will remain in the range of 24-26%.

The company had a forex gain of USD 48.5 million in Q1FY2022 against a loss of about USD 8.6 million in Q4FY2021. And miscellaneous and interest income higher by USD 11.3 million.

The cash flow for the quarter was USD 172.4 million which was 94.1% of PAT.

In spite of increase in revenues DSO was up by 1 day from 92 days to 93 days.

The company large deal pipeline stood robust with new deals at USD 815 million in the quarter (Communication media and entertainment contributing USD 352 and Enterprise contributing USD 463). From deal tenure perspective there is no meaningful change and average tenure remains mostly the same.

The company won largest health care deal and largest bps deal in Q1FY2022. Health care deal is about patient care modernization and BPS deal more digital and integrated back-office provisioning and fulfilment.

The investment that the company made over the last few quarters towards 5 G namely customer experience management, cloud, Artificial intelligence, data analytics and IoT. All the capital were deployed in acquiring in companies in these spaces and each of these acquisitions are now well integrated. The company is seeing increased traction in some of these investments.

Highlights

High-tech vertical is been tracked by the company for last 5 quarters and the company invested in a management team that the company hired for hi-tech vertical. Hi tech vertical for the company is hyper-scalers, plant engineering companies and some of the unicorns. The hi-tech vertical has shown the highest growth over the last 5 quarters and this quarter particularly it grew by over 8%.

In digital BPS on customer experience side the company has continuously evolved. The company has shown spectacular results which grew by 11.0% QoQ. A very strong demand and a strong performance.

Services and platforms are a new business unit and the company believes that it will become one of the high investment areas. Platforms registered 60+ new wins. 58 new accounts and highest Rs PAT in Q1.

Frame work for 5 G:

The company continues to do transformation work for the Telco's both in terms of network as well as digitalization. 5 G for the ecosystem. 5 G for enterprises. The company will not be going for high volume and low margin business.

Non 5G business will continue to grow and once the 5 G picks up 5 G will fill the gap.

In the technological vertical there is no customer concentration and is pretty broad based.

The company had a head count of 126263 employees in Q1FY2022. The company will hire significantly both laterally and fresher's. The trend will be somewhat the company did in Q1FY2022.

The company continues to focus on talent, talent supply chain and continuing to invest in mergers and acquisition. The company's partner ecosystem has become stronger both with traditional players and new age companies. The company is creating new solutions through partner eco system.

Guidance:

The company expects double digit organic revenue growth.

Management Commentary:

Commenting on the performance of the company, CP Gurnani, Managing Director & Chief Executive Officer, Tech Mahindra, said, "We have witnessed an all rounded performance this quarter with growth across our key markets and industry sectors. We continue to see strong traction in large deal wins as we are helping our customers in integrated digital transformation. Our focus on key technology pillars wrapped around experience-led approach with TechM Nxt. now will help us to capitalize on the strong demand momentum".

Milind Kulkarni, Chief Financial Officer, Tech Mahindra, said, "We continue to build on our profitability journey and have reported highest ever quarterly Revenue and Profit After Tax this quarter. Delivery Excellence will be a cornerstone in improving our operational and financial metrics, as we look to capitalize on the incremental digital spends over the course of the year".