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Tech Mahindra: Decline in non-BT account hurts - Views on News from Equitymaster
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Tech Mahindra: Decline in non-BT account hurts
May 29, 2012

Tech Mahindra has announced its fourth quarter results for the financial year 2011-2012 (4QFY12). The company has reported a 1.8% QoQ decline in sales and a 9.6% QoQ growth in net profits. Here is our analysis of the results.

Performance summary
  • Net sales declined by 1.8% QoQ on the back of decline in the sales from non-BT (British Telecom) business during the quarter. For the year ended March 2012 (FY12), sales grew by only 6.8% year-on-year (YoY). The main reason for this tepid performance is that the revenues of FY11 included one-time revenue of Rs 2,990 m on account of third party hardware and software purchased for a customer, which was not present during FY12.
  • In terms of US dollar revenues, the decline in sales was 2.5% QoQ during the quarter. This was due to a 5.5% QoQ decline in the non-BT business. Business from BT account grew sequentially by 3.1% during the quarter. This was aided by some one-time discretionary spend by BT during the quarter.
  • Operating margins improved by around 0.6% QoQ to 16.9% as compared to 16.2% in the previous quarter (3QFY12). This was on account of lower cost of services (as a percentage of sales) during the quarter. However, for FY12, margins declined by 2.8% YoY as compared to the same period last year.
  • Despite decline in net sales as well as lower margins at operating levels, bottom line grew by 9.6% QoQ mainly due to higher contribution from the share of profits from its associate Mahindra Satyam during the quarter. For FY12, net income increased by 70.1% YoY mainly due to huge gains on account of its associate Mahindra Satyam as compared to negative contribution seen during the same period last year.
  • The company's employee base stood at 40,763 as at the end of March 2011, which means that total headcount number went down by 1,983 during the quarter. This was mainly due to a decline of 1,627 employees in the number of BPO professionals during the quarter. The headcount of software professionals also declined by 385 during the quarter.
  • The total number of active clients remained flat at 130 during the quarter.
  • Proposed a final dividend of Rs 4 per share (yield of 0.6%).

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