Tech Mahindra Reports Unexpected Revenue Growth

By Haripriya Suresh

BENGALURU (Reuters) – Indian IT services firm Tech Mahindra reported on Saturday that revenue exceeded expectations for the three months through September, supported by strong performance in European and other non-American markets, as well as growth in the banking, financial services, and insurance (BFSI) sector.

Financial Highlights

• Revenue Increase: Revenue rose by 3.49% to 133.13 billion rupees ($1.58 billion) for the financial second quarter compared to the same period last year, surpassing analysts' average forecast of 131.9 billion rupees (according to LSEG data).
• Profit Growth: Net profit increased 153% to 12.5 billion rupees ($149 million), bolstered by one-time gains from land sales and additional income from furniture and fixtures, amounting to 5.2 billion rupees.

Segment Performance

• Despite the overall growth, the communications segment showed weakness, which accounts for one-third of total revenue. Higher borrowing costs and macroeconomic risks have restrained clients' discretionary tech spending.
• BFSI Segment Growth: The BFSI segment saw a revenue increase of 4.5%, while the Hi-Tech and Media segment grew by 2.4%. Europe contributed a 4.1% increase, with the Rest of World market growing by 9.7%.

Future Outlook

• Tech Mahindra's order bookings declined to $603 million from $640 million in the prior year. In April, the company launched a three-year turnaround plan to enhance revenue and double its operating margin to 15% by fiscal 2027 after experiencing a slowdown in growth and margins.
• CEO Mohit Joshi indicated that they are in the early stages of the turnaround, expecting volatility in the telecom and BFSI portfolios ahead.

Analyst Commentary

Gaurav Parab, a principal research analyst at NelsonHall, described the results as indicative of a positive trend. He noted that CEO Mohit Joshi's strategic initiatives around restructuring and focusing on account management are beginning to show results, although significant outcomes may take a few more quarters to materialize.

($1 = 84.0650 Indian rupees)