Tech Mahindra Q1 Results: Profit Rises 30%, Meets Estimates

Tech Mahindra Ltd. recorded an uptick in net profit in the first quarter of fiscal 2025, meeting analysts' estimates, as the demand environment improved. The company expects fiscal 2025 to be better than the previous fiscal, with broad-based growth being registered.

The Indian IT major saw its bottom-line rise 30.23% over the previous three months to Rs 865 crore in the quarter-ended June, according to an exchange filing on Thursday. That compares with the Rs 874-crore consensus estimate of analysts tracked by Bloomberg.

Tech Mahindra Q1 FY25 Highlights (Consolidated, QoQ)

• Revenue up 1.04% to Rs 13,005.5 crore (Estimate: Rs 12,967 crore).

• EBIT increased 16.47% to Rs 1,102.3 crore (Estimate: Rs 1,515 crore).

• EBIT margin expanded 112 basis points to 8.47% (Estimate: 11.70%).

• Net profit rose 30.23% to Rs 865 crore (Estimate: Rs 874 crore).

Profit on a year-on-year basis was up 22.9%. Revenue from operations at Rs 13,005 crore was up 1% on a quarter-on-quarter basis, and down 1.2% on a YoY basis. Revenue from the communications vertical was down 1.9% QoQ and 9.9% YoY, due to Comviva seasonality. Healthcare and life sciences grew 7.9% QoQ, and 6.1% YoY.

“I don't think that the situation has dramatically changed from three months ago. I would say that we are seeing a slightly more stable demand environment. From a TechM perspective, we feel more stable and more settled into a new organisation structure, which will allow us to take better market opportunities. We are more confident that this will be a better year compared to the previous one,” said Mohit Joshi, CEO and MD at Tech Mahindra.

In terms of geographies, America grew 3.9% sequentially, while Europe and Rest of the World dipped 2.6 and 2.7%, respectively. New deal wins at $534 million were higher than the $500 million recorded in the last quarter. However, the number of active clients reduced to 1,165 in Q1 from 1,172 in the last quarter.

In terms of verticals and geographies, Joshi said that the company is seeing new opportunities in existing accounts and new logos in BFSI, and improvement in spending is being seen across asset and wealth management, cards and payments, retirement, risk and compliance and the insurance space.

Telecommunications vertical is also expected to improve in the next couple of quarters. However, some parts of businesses could be at risk because of insourcing. Tech Mahindra is also seeing gradual improvement in the trajectory in the US, according to Joshi.

Margin expanded 112 basis point this quarter. CFO Rohit Anand noted that margin headwinds in the quarter were declining revenue from seasonality of Comviva, and visa costs going up, which were offset by the operational efficiency, cost-saving effort, and Project Fortius—its three-year turnaround plan.

Commenting on the margin improvement plan, Joshi said, "Internally, we're focused on looking at our revenue mix, geographies, problem projects and realisation rates. I do feel that our margin will keep firming from here onwards, and our margin trajectory will be upwards. This is the first year of the turnaround, so there will be increased volatility, but the long-term trend is certainly up."

Employee headcount stood at 1,47,620, with an addition of 2,165 employees since the last quarter, due to addition of interns in Business Process Services segment. The company added 1,000 freshers in Q1, and said it has not yet decided on the wage hike cycle. Attrition remained flat at 10% and utilisation stood at 86%.

The adoption of Generation AI is widely discussed in boardrooms and technology teams, but enterprise adoption remains low. Pilots often encounter errors, prompting human intervention and reducing productivity benefits, leading to hesitance in scaling up to enterprise levels, Joshi said talking about the progress in Gen AI deals.

However, Tech Mahindra's recent VerifAI launch, which is one of the first AI assurance and validation platforms by a system integrator, will allow clients to adopt Gen AI a lot more effectively, he said.

On Thursday, Tech Mahindra shares rose 0.44% to Rs 1,540 apiece, even as the benchmark Sensex ended the day 0.03% lower at 24,406.10 points. The quarterly results were declared after market hours.