Tech Mahindra Q4 net profit falls 29% to ~804 cr

Recommends final dividend at ~5 apiece

IT services company Tech Mahindra on Thursday missed the profit estimates for Q4FY20 on higher employee costs and one-time impairment charge even as the company said it was expecting recovery in demand in the medium term.

The Pune-headquartered firm reported ~804 crore in consolidated net profit in the March quarter (Q4FY20), a decline of 29.1 per cent on year-on-year (YOY) basis. On a sequential quarter basis, it dropped 30 per cent. The company took an impairment charge of ~217.5 crore during the quarter for writing off goodwill and non-current assets.

Revenue for the quarter stood at ~9,490 crore, a growth rate of 6.7 per cent YOY, though it fell 1.7 per cent sequentially. In dollar terms, revenues stood at $1,294.6 million, a decline of 3.3 per cent QOQ.

The operating margin contracted 200 bps to 14.2 per cent— lowest in 10 quarters. The new deal wins stood at $3.7 billion for the full year. The board has declared a final dividend of ~5 per share, subject to approval at the forthcoming annual general meeting. The numbers fell short of Street expectations on the profit front. ICICI Securities expected the PAT (profit after tax) at ~1,040.4 crore, down 8.1 per cent YOY and 9.2 per cent QOQ. Rupee revenues, however, was expected to grow 2.6 per cent QOQ to ~9,903 crore. “In an anticipation of events associated to the pandemic and lower utilisation levels, we have taken a provision of around 100 bps. However, we don’t expect the provisioning to continue further due to strong deal wins in Q4,” said Manoj Bhat, chief financial officer, Tech Mahindra

The company’s full-year revenue stood at $5,181.9 million the whole of FY20 — a growth of 5.6 per cent in constant currency terms. Net profit for the year rose 6.3 per cent to ~4,033 crore. Operating margin stood at 15.5 per cent, a contraction of 270 bps compared to last year.

“The Covid-19 pandemic has brought an unprecedented change in the business model for the IT industry. While the demand traction seen through the first three-quarters of FY1920 has reversed in Q4, we expect that the focus on digital transformation, remote working, and network modernisation will recover in the medium term,” said C P Gurnani, chief executive officer.

The headcount stood at 125,000 at the end of March quarter, up around 4,100 compared to the corresponding period last year. The company has also decided to stall wage hikes for the next six months.