- Company reported healthy revenue growth of 4.7% QoQ and 17.5% YoY on constant currency (CC) basis in Q3FY22. Organic growth remained at 4% on CC basis. Reported US Dollar revenue grew by 4.1% QoQ and 17.2% YoY to $1,533.5 million. Revenue for the quarter came in at Rs 11,450.80 crore, up 18.7 per cent YoY over Rs 9,647.10 crore over the corresponding quarter last year. Sequentially, revenues were up 5.2 per cent. Consolidated profit after tax (PAT) rose 4.5 per cent year-on-year (YoY) to Rs 1,368.50 crore compared with Rs 1,309.80 crore in the same quarter last year. Sequentially, the profit was up 2.2 per cent.
- EBITDA (earnings before interest, tax, depreciation and amortisation) for the quarter was up 8.7 per cent YoY at Rs 2,060 from Rs 1,895.40 crore in the year-ago quarter. Ebit margin for the quarter came in at 14.8 per cent, which was lower than 15.2 per cent in the September quarter and 15.9 per cent in the year-ago quarter.
- EBIT margins declined by ~40bps (basis points) QoQ in Q3 due to impacts from: 1) salary hikes, 2) higher subcontractor expenses, and 3) lower utilization. This was partially offset by operating efficiencies and lower SG&A. EBIT margins likely to improve in FY23.
- The strong growth in Communication, media and entertainment (CME) segment (up 6.2% QoQ) was primarily led by network services revenue. However, the growth in enterprise segment moderated to 2.7% QoQ from 6.3% QoQ in Q2FY2022, owing to weak seasonality in BFSI and hi-tech verticals. Within enterprise segment, retail, healthcare and manufacturing reported strong growth during the quarter. The Business process services (BPS) business segment reported strong revenue growth of 9.7% QoQ and 35.3% YoY.
- Segmental Geographies: In USD QoQ terms, Americas (6.5% QoQ), Europe (2.5 % QoQ) and Rest of the world-ROW (1.4% QoQ).
- Verticals: In USD QoQ terms, BFSI (-1.6% QoQ), retail (13.5% QoQ), communication, media and entertainment (6.2% QoQ), technology (-2.8% QoQ), manufacturing (2.8% QoQ) and others (5.1% QoQ).
- Company reported a total contract value (TCV) of new deal wins of USD704mn in Q3 on the back of a strong TCV of ~USD750mn in Q2FY22. The deal wins in Q3 were driven by small and medium size deals. This is fourth straight quarter of USD700mn+ of TCV for the company. Revenue from the top 5 and top 10 accounts grew strongly at 5.1% QoQ and 4.3% QoQ during the quarter.
- Headwinds in FY23 include: 1) continuous supply-side pressures, and 2) rising travel expenses as normalcy resumes. Tailwinds include: 1) improving revenue growth trajectory, 2) reducing subcontractor expenses, 3) pyramid optimization and 4) SG&A (selling, general and administration) normalization.
- Management indicated that efforts to improve the employee pyramid by hiring freshers from tier 2-3 cities and in near-shore locations like Belarus, Latvia and Costa Rica are having an impact on utilization levels, resulting in lower margins in the short term and remains optimistic on long-term benefits of their initiatives. Management also indicated that talent outside Tier 1 cities also benefited with wages lower by ~15% and lower dropout rates.
- Six clients were added to USD10mn+ revenue bucket QoQ. No change in USD20mn+ and USD50mn+ buckets.
- Headcount grew 2.7% QoQ, with a 5.6% QoQ rise in software professionals. Utilization (excluding trainees) was 86% vs. 89% in Q2FY22, and utilization including trainees was at 84% vs 87% in Q2FY22. Offshore revenue mix was at 39%, same as Q2FY22.
- Subcontracting expense as a % of revenue was at 16.4% vs 15.3% in Q2FY22 and 12.4% in Q3FY21.
- Clients: Revenue for the top 5 clients grew 6.9% QoQ and for the top 10 clients grew 2.8% QoQ in USD terms.
- Guidance: EBIT margins of ~15% for FY22.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell stocks or MF.
Originally Published On: https://blog.investyadnya.in/tech-mahindra-q3fy22-conference-call-highlights/