Tech Mahindra 3Q revenue increases 0.36pc
Tech Mahindra Ltd, India's fifth largest software services exporter, said fiscal third-quarter revenue in dollar terms rose 0.36% sequentially, marginally faster than analyst estimates, although the company continued to struggle to record sustained growth as reflected in a decline in the US, its largest market.
A declining share of business from Tech Mahindra's largest clients and fewer customer additions hurt revenue growth. Worryingly for the company, Tech Mahindra, which has recorded a revenue of $3.01 billion in the nine months of this fiscal, now needs to grow at 3% in the current January-March period if the firm wants to end the fiscal year with a growth of more than 10%. Tech Mahindra does not give any forecast but since the company reported a 0.5% sequential growth in the first quarter and a 2.2% rise in the second quarter, amid uncertainty over technology spends from management commentaries at large information technology (IT) firms, this will be a tall task. Tech Mahindra grew 19% last year.
Tech Mahindra, part of the $16 billion Mahindra Group, saw its revenue in dollar terms rise to $1.01 billion, higher than Bloomberg analyst estimates of $998.63 million. Net profit was down 3.7% from the preceding September quarter to $115 million, marginally beating analyst estimates of $114.3 million. In rupee terms, the company's revenue increased 1.3% from the preceding quarter to Rs.6,701 crore even as net profit jumped 3.4% to Rs.759 crore. Analysts had been expecting a net profit of Rs.772.7 crore on a revenue of Rs.6,749.3 crore, according to a Bloomberg survey.
The management of Tech Mahindra put up a brave face. "I'm very conscious that typically this quarter is not considered the best of the quarters because of the holiday season… but, overall, when we look back, it has been a good performance...our margins have improved primarily due to improved utilization and rupee depreciation," Tech Mahindra managing director and chief executive officer C.P Gurnani said in an interview.
Tech Mahindra's ability to generate more business from its existing clients continued to be a challenge. Its share of business from its top 20 clients continued to decline. Tech Mahindra's top 20 clients now account for 52% of its revenue, as against 61% in the year-ago period. The company added 13 clients to take the total number of active clients to 788, as against the 18 clients added in the JulySeptember period.
"It has been a challenging year, no doubt about it; but (having) around 10% growth (in) US dollar is reasonably satisfying," chief financial officer Milind Kulkarni said in an interview. "Obviously, on the margin front, we have not done all that well." Another worry ahead of Tech Mahindra is its ability to integrate the firms it has bought. Tech Mahindra, along with parent Mahindra and Mahindra Ltd, bought Italian car designer Pininfarina SpA last year, and has also spent $240 million to buy US-based Lightbridge Communications Corp. (LCC) and Geneva-based consulting and services firm Sofgen Holdings in the last two years.
"Integrating a large acquisition is never an easy task. We have done in the past. That is something that always takes time," said Kulkarni. "In LCC, we have discontinued some of the non-profitable business. That's impacting some of the revenue growth in LCC. We have discontinued some of the businesses in August-September. But we are really expecting an improvement in performance in the next three to four quarters."
Business from the US, which accounts for 48% of revenue, declined 1.7%, while client spending in Europe did not report any growth. "The management has said that there are challenges in the energy and communications sectors. It has also talked about challenges in integrating the companies acquired. So, obviously, execution will be the focus.