Home >Markets >Mark To Market >Tech Mahindra’s impressive Q3 to add heft to its valuations
Sarvesh Kumar Sharma/Mint
Sarvesh Kumar Sharma/Mint

Tech Mahindra’s impressive Q3 to add heft to its valuations

  • Tech Mahindra’s constant currency revenue grew 4.3% on a sequential basis
  • The digital business, which drove business growth, has better realizations and margins

After languishing for years, shares of Tech Mahindra Ltd have nearly doubled from their lows touched in mid-2017. The rebound is largely to do with a recovery in the company’s margins. Operating profit margin has widened from merely 9% in the June 2017 quarter to 16% currently.

In the December 2018 quarter, operating margin improved 80 basis points sequentially, and 340 basis points from a year ago. Analysts were expecting an improvement, albeit at a much slower pace, as they assumed recent large deal wins involved lower margins.

What’s more, Tech Mahindra’s constant currency revenue grew 4.3% on a sequential basis, against estimates of about 2.7% increase. Deal wins remained strong, although they fell marginally compared with the second quarter.

The digital business, which drove business growth, has better realizations and margins. Further, cost-rationalization measures such as automation helped improve profitability.

On the negative side, attrition continues to increase. From 17% in the year-ago quarter, attrition rose to 21% in December 2018. The worry about high attrition levels is that it comes in the backdrop of high utilization levels, which reached 83% last quarter. Both factors together may drive up employee costs, said some analysts.

Heading into FY20, investors will be keen to know if the much-awaited spending in next-generation telecom technology (5G) materializes. That will not only result in sustained growth momentum but also help the Tech Mahindra stock reduce the valuation gap with its larger peers.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.

Close
x
×
My Reads Redeem a Gift Card Logout