The company hosted a conference call on Feb 01,2022. In the conference call the company was represented by Mr C P Gurnani-CEO and Mr Milind Kulkarni-CFO.

Key takeaways of the call

The company continue to strengthen its presence, deliver broad-based profitable growth and value for its customers, backed by future-ready talent and niche digital capabilities. The company is working towards becoming more purpose driven, people centric and performance driven organization.

The company is committed to ESG, prudent capital allocation and to become better company every day.

Revenues for the quarter stood at US $ 1533.5 million and in rupee terms stood at Rs 11,450.8 cr. The annual revenue run rate for the company stood at US $6 billion. Tech Mahindra's revenues rose 4.7% sequentially in constant currency. However, currency headwinds of 60 bps led to growth of 4.1% QoQ in reported currency terms.Organic revenue growth was at 4.0% QoQ. Growth was led by CME vertical and augmented by enterprise vertical.

Communication, Media and Entertainment (CME) vertical grew 6.9% sequentially in CC. Network services is driving the growth in the CME vertical.

Enterprise business has grown by 3.2% in constant currency. Within enterprise manufacturing, retail and HNS showed healthy growth.Lower growth was due to seasonality and some of the projects coming to an end and also due to 3rd(omicron)wave of covid. BFS segment should rebound strongly in Q4FY2022 as it was low due to seasonality.

Margin: The company had expected to deliver a average EBIT margin of 15%, however, considering the growth and lot of sub contract cost the company has delivered a EBIT margin of 14.9%.

Margins declined by 40 bps. Margins were impacted by supply chain challenges mainly higher salary and subcontract cost and lower utilization. This was partially offset by operating leverage and some tail winds in SG& A which was one time. The normalized SG&A going forward will be little lower than 13%. The company had benefit of 70 bps in Q3FY2022 across multiple line items in S,G &A. The company has not reduced any investment in sales and marketing.

Margins will improve going forward as the company has invested in pyramid formation (hire freshers and train them) and setting up centers in 9 tier II cities in India and setting up centers near shore. The company has hired around 8000 people in tier two cities in last couple of quarters. Average cost is lower by 15% and drop out in these centers is also lower by 15% in tier II cities. Margins will improve due to better utilization rate.

Subcontracting cost pressure will continue in the near term due to higher demand and travel restrictions coupled with some of the contracts ramping up however it will ease once the company moves to full time employees over a period.

Other income was lower when compared to last quarter due to lower interest on account of Mark to market loss.

Tax rate was 26.9% in Q3FY2022 as against 29.4% in Q2FY2022. Normalized effective Tax rate is maintained in the range of 26-27%.

DSO has increased by 9 days to 101 days as some of the collections were moved to January which the company collected in the first week. The company expects the DSO to come back to normal level in coming quarter.

Deals: Deal momentum continued to healthy with new deal wins of US $ 704 million. This is the fourth quarter of US $ 700 million +deal wins. Deal wins was broad based across both CME and enterprise vertical.

CME vertical deals: The company's 5 G positioning is not towards network deployment (the company will not be doing too much of network construction deployment activity) but focus more on system integration, realization of network from certification stand point, more of design and focus more on digital cloud aspect of 5 G. This is primarily to avoid commoditization which happens on network deployment and not go for volume but to stick to quality as volume will have an impact on margin. This will also help the company to focus on core platform side which is to drive automation. The company will focus on management of networks.

The company has taken a bold step to split BFSI (Banking, Financial Services and Insurance) into BFS (Banking and Financial services) and Insurance. BFSI will be one of the sectors which the company will be focusing on for growth.

While the company's Communication, media and Entertainment grew well, the company plans to make verticals including BFSI, Manufacturing, health care and hi-tech a billion + verticals.

Human resource: The company head count increased by 3,874 taking the total head count to 1,45,067 in Q3FY2022. The company has diversified into 9 tier II cities in India and also has set up supply bases over sees including Romania, Costa Rica and other places. The company has spread out its supply base to near shore center through recent acquisitions.

The company added 24,000 of which around 10000 freshers in the last 9 months. In the tier II cities the mix is good, niche skill is available and also the dropout rate is low.

Attrition rate jumped to 24% from 21 % in the previous quarter and 12% in the year-ago quarter.

On the technology side the company has made an investment in a block chain company in Europe, and that bold bet has coming to much bigger reality as zero, NFT, Meta world has become house hold name. This coupled with connectivity solution with 5 G, combined with solutions with user application and human experience, the company is in a very strong position.

On the sustainability and marketing side the company has partnered with Mahindra racing for their EV racing cars. On the sports side, the company has partnered to manage stadiums and man experience particularly during covid times and the management is happy about how the company has evolved with engineering solutions and new technologies and continues to look at green solutions.

Cash reserve: The company has a cash reserve of US $ 1.3 billion and will continue to generate free cash flow as such will continue to return cash to shareholders.

Management Commentary:

Commenting on the performance CP Gurnanai -CEO, said "Our people-first approach combined with sustained value creation this quarter reflects our commitment towards redefining possibilities and competencies in the new normal. We continue to strengthen our presence, deliver broad-based profitable growth and value for our customers, backed by future-ready talent and niche digital capabilities."

Mr Milind Kulkarni CFO said, “We continue to transform our operations and add new capabilities enabling us to grow faster while sustaining our profitability. Our focus on operational efficiencies and investments for the future will help us drive exponential value creation in the long run.”