Tech Mahindra hosted a conference call
on April 27,2023. In the conference call the company was represented by Mr C P
Gurnani-CEO and Mr RohitAnand–CFO.
Key takeaways of the call
FY2023 was yet another year of double digit
revenue growth. Large deal win stood at around US $ 2.9 billion.
The company’s Communication, Media and
Entertainment (CM&E) despite challenges has continued to grow for the last
12 quarters in a row. On the Enterprise side, the company has touched a billion
dollar quarterly run rate. This is on account of the technology investments and
up-skilling investment which the company has made on quantum computing, Meta,
on block-chain, cloud and customer experience management which are yielding
good results.
Full Year FY2023:
Revenues for FY2023 grew by 13.7% YoY in
Constant currency. Margins were under pressure; however, the investments which
the company has made will lead to operating efficiency particularly on
automation. The company believes that there is enough operating levers to drive
margin.
Revenues for the year stood at US$ 6.6
billion. Communication business grew by 13.4% and Enterprise business grew by
13.9% YoY in CC terms. Within enterprise technology, retail, and manufacturing
are the major growth drivers for the year.
EBIT margin for FY2023 came in at 11.4%
when compared to 14.5% in FY2022. Broadly
300 bps decline in EBIT was driven by headwinds due to wage inflation that the
company saw on the supply side, more aggravated towards the first few quarters
versus the last quarter, SGA travel costs with some of them normalization post
COVID increasing year on year, some of the deal M&A related costs that the
company had articulated before around 50 bps.Large deal ramp up initial cost to
the tune of 70 bps. This was offset by pricing which contributed close to 100
bps, there was reduction in sub con cost to the tune of 80 bps and then the
company continued to drive offshore and that has helped the company get benefit
of 30 bps.
Q4FY2023:
Revenues for Q4FY2023 stood at US$ 1668
million marginally up when compared to Q3 in constant currency terms. CME
vertical grew 1.8% QoQ on a cc basis and Enterprise vertical decreased by 0.7%.
In Rupee terms revenue in Q4 stood at Rs
13718 cr as against 13735 cr in Q3FY2023.
Margins: EBIT margin stood at 11.2% as against 12% in Q3. The reduction of 80 bps
was largely contributed by currency impact of 60 bps and SGA factor of 90 bps.
And these were offset by productivity actions that the company had articulated
in the past that the company has been working on Subcontractor cost which gave
the company a benefit of 70 bps.
The company had foreign exchange loss in Q4
when compared to gain in Q3. This was primarily due to one of impairment cost
in Q4.
Effective
Tax rate: Effective tax rate for the quarter stood
at 26.2% in Q4 when compared to 27.4% in Q3. The company expects normalised tax
rate to be in the range of 25-26% going forward.
Revenue decline with top 5 clients is more
or less stabilising. The company says that it has witnessed majority of the
impact and expects that things should improve from here on.
Levers for margin improvement include
decline in sub con cost; large deal will get mature so there will be some
reduction in cost; 4-5% improvement in offshore rates; pyramid rationalization
and structured action to divest non-profitable and low profitable businesses.
Wage
Hike: The company will continue the same strategy
what it followed earlier with respect to wage hike. The company will stagger
the wage hike in FY2024.
Order
Book: The Company reported an order book for $592
million for the fourth quarter ended a decrease of 25.5%QoQ from $795 million;
and 41.44% drop on a YoY basis. In Q4FY22, the company had reported $1 billion
in deal wins.
Overall deal wins for full year FY2023 stood at $2.9 billion, a decrease from $3.28 billion in
FY22.
Outlook:
The global economic outlook continues to be
uncertain, the macro indicators and the actions of the monetary and regulatory
authorities or policy decisions are impacting the decisions and are slowing on
decision making. The clients of the company are cautious and company needs to
be cautious.
However, the other way of looking at it is
Tech Mahindra has never wasted a crisis. The company will double its
investments in up-skilling and also double its investment in some of the
practising markets like Japan, Middle East as the company believes its clients
will eventually want to move to new platforms, would want to move away from
legacy to digital. The economic downturn will force decision making
particularly from legacy to digital.
The company believes that this phase is
temporary and expects recovery to happen within FY2024.
The company is witnessing robust pipeline
from where it was in FY2022. Also client conversation is strong and positive
however ther is delay in decision making in discretionary spends.
The company expects one two quarters to be
soft and pick in the second half in demand.
Pricing: The Company expects limited pricing improvement in FY2024.
Dividend: The board has approved final dividend of Rs 32 per equity share taking
the total dividend for FY 23 to Rs 50 per share, which is an expansion of close
to 11% from Rs 45 a share in FY2022.
Management
commentary:
Commenting on the performance CP Gurnani, Managing Director &
Chief Executive Officer, Tech Mahindra, said,“As we step into FY''''24, we see the
increasing need for businesses to stay agile by leveraging next generation
technologies. We are strongly focused on helping our customers stay
competitively dominant and relevant in the era of fast evolving market
conditions by helping them adapt to leaner and sustainable business models”
RohitAnand, Chief Financial Officer, Tech
Mahindra, said,“Our strategy of prudence and operational excellence helped us
through the uncertainties of FY’23. We continue to return cash to shareholders
through a consistent dividend policy. We move into the next fiscal, with
sharper focus on productivity improvements, cash & value creation for our
stakeholders”
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