Tech Mahindra: Mahindra Satyam propels bottomline - Views on News from Equitymaster

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Tech Mahindra: Mahindra Satyam propels bottomline

Aug 17, 2011

Tech Mahindra has announced its first quarter results for the financial year 2011-2012 (1QFY12). The company has reported a 2.5% QoQ and a whopping 200% QoQ growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grew by 2.5% QoQ on the back of a 2% QoQ growth in volume during the quarter.
  • Operating margins fell by 1.8% QoQ to 18.7% as compared to 20.5% in the previous quarter (4QFY11). This was on account of higher employee costs (as a percentage of sales), largely due to new recruitments during the quarter.
  • Bottom line increased by a whopping 200% QoQ mainly due to gains on account of its associate Mahindra Satyam as compared to the losses seen during the previous quarter (4QFY11). Excluding the associates, net profit actually declined by 12.6% QoQ during the quarter.
  • The company's employee base stood at 42,850 as at the end of June 2011, which means that about 4,517 employees were added during the quarter, of which 2,793 were added in BPO
  • No new client was added during the quarter, therefore total number of active clients remain at the same level of the previous quarter which is 128.

    Consolidated Financial Snapshot
    (Rs m) 4QFY11 1QFY12 Change
    Sales 12,615 12,925 2.5%
    Expenditure 10,025 10,508 4.8%
    Operating profit (EBITDA) 2,590 2,417 -6.7%
    Operating Profit Margin (%) 20.5% 18.7%  
    Other income 318 461 45.2%
    Interest 213 223 4.6%
    Depreciation 387 334 -13.6%
    Profit before tax 2,308 2,321 0.6%
    Tax 226 508 125.0%
    Minority interest (16) (8)  
    Profits from associates 1,521 960  
    Exceptional income / (losses) (2,665) -  
    Profit after tax/(loss) 921.9 2,766 200.0%
    Net profit margin (%) 7.3% 21.4%  
    No of shares (m) 126.0 127.0  
    Diluted earnings per shares*#   61.1  
    P/E ratio#   11.9  
    # On a trailing 12-months earnings basis

    What has driven performance in 1QFY12?
    • Tech Mahindra recorded a 2.5% QoQ growth in its sales during the quarter. This was driven by the BPO services segment which grew by 21.2% QoQ during the quarter. The 'telecom equipment manufacturer' (TEM) segment witnessed a growth of 6.4% QoQ during the quarter. The company's bread and butter, 'telecom service provider' (TSP) segment witnessed a marginal growth of 0.7% QoQ during the quarter. However, the 'others' segment witnessed a decline of 12.6% QoQ during the quarter.

    • During the quarter, Tech Mahindra derived 32%, 51% and 17% of its revenues from the US, Europe and ROW (rest of the world) regions respectively. Sales from the ROW region registered a growth of 8.9% QoQ during the quarter. The revenues from US witnessed a growth of 2.5% QoQ during the quarter. The company's European business still seems to be not picked up as it sales from the region improved marginally by 0.5% QoQ during the quarter.

      Revenue breakup
      (Rs m) 4QFY11 1QFY12 Change
      On the basis of segments
      Telecom service provider (TSP) 10,568 10,647 0.7%
      Telecom equipment manufacturer (TEM) 779 829 6.4%
      BPO service 1,007 1,221 21.2%
      Others 261 229 -12.6%
      Total 12,615 12,925 2.5%
      On the basis of geography
      US 4,037 4,136 2.5%
      Europe 6,560 6,592 0.5%
      Rest of the world 2,018 2,197 8.9%

    • Tech Mahindra's operating margins declined by 1.8% QoQ due to an increase in cost of services (as percentage of sales), which was largely on account of new recruitments during the quarter. This was offset to some extent by the savings in 'Selling, General & Administration' expenses (all as percentage of sales).

    • The company's utilization levels fell to 71% as against 74% in 4QFY11.

    • Tech Mahindra's net profits increased by a whopping 200% QoQ during the quarter. This was mainly on account of the profits from its associate, Mahindra Satyam, as compared to the losses seen during the previous quarter. Excluding associates, net profits actually declined by 12.6% QoQ. The decline would have been worse if not for the higher other income and lower depreciation charges during the quarter which offset the impact of higher effective tax rate.

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Jun 25, 2021 03:35 PM


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