Q4FY21 Conference call highlights of Tech Mahindra
Published on 27 April 2021
Company has a three year plan – first year being repair phase, second year being rally phase and the third year being acceleration phase. FY21 was a repair phase for the company and FY22 is expected to be a year of rally phase.
Management is optimistic about the large deals it has signed in billion dollar category as compared to the smaller deals signed in last three quarters in $400-$500mn category.
Given the current deal momentum and execution, company is confident of delivering double digit revenue growth in FY22
Company has already rolled out salary hikes effective from April’21 and its impact on margins will be offset by operational efficiencies. Company also expects increased travel costs in second half of FY22 on the back of increased vaccination. However despite these changes, company is confident of achieving an EBIT margin to the tune of 15% in FY22.
Company got recognised under global 100 most sustainable corporations and thus, meets some of the best industry standard on ESG parameters.
Growth is equally distributed across communication and enterprise.
New deal wins to the tune of $1.04 bn and divided equally between enterprise ($0.52 bn) and communication ($0. 52bn).
EBIT margin of 16.5% is highest margin reported in last 6 years.
Expansion of EBIT margin by ~60bps on QoQ basis on the back of operational efficiency, delivery transformation, increased utilisation due to offshoring and lower depreciation on the back of conservative capex, which was partially offset by recruitment costs.
PAT declined ~17% QoQ mainly due to two reasons –
Higher tax provision because of one time tax charge in two of company’s subsidiaries. Company’s effective tax rate was ~32% in Q4FY21, however going forward it is expected to be ~25-26%.
Lower other income because of forex loss.
FCF as a % PAT at 127% mainly on the back of continuous improvement in debtor days to 92 days from 95 days in this quarter.
In enterprise segment, company has witnessed robust growth across BFSI, Technology and Retail verticals.
TCV for FY21 stands at ~$2.2bn, spread equally across communication and enterprise verticals.
Savings in travel costs, operational costs, higher offshoring and better utilisation has led to expansion of EBIT margins by 260 bps on YoY basis.
FCF for FY21 came in at Rs 965 mn, which is 162% of PAT mainly on the back of reduction in debtor days in FY21 by 20 days to 92 days.
Next year, Debtor days are expected to be in the same range, which the company feels is at optimum level.
Company has announced a divided of Rs 45 per share, which is the highest ever dividend declared by the company.
This comes to ~40% of FCF and company wishes to adhere to its policy of retaining cash required for M&A and internal operations , thus returning the remaining cash profits to the shareholders.
Deal Pipeline and Business Verticals:
In the communication segment, company is looking forward to deals with legacy modernisation , customer care and transformation using AI and ML. Company also expects to see traction in 5G adoption especially in developed economies.
Manufacturing was a stress vertical in Enterprise segment , which started picking up since H2FY21.
Growth uptick from America and Europe regions.
Company expects all four of its verticals in enterprise – communication, retail, BFSI and manufacturing to start registering double digit growth in FY22.
Mergers and Acquisitions
Tech Mahindra acquires 70% stake in Perigord Asset Holdings Ltd to augment its expertise in pharmaceuticals and healthcare segment.
Company also acquired 100% stake in DigitalOnUS to strengthen its position in cloud vertical
100% stake acquired in EventUs Solutions group to augment capabilities in Customer Experience.
Company’s attrition for Q4FY21 came in at ~13%, higher by 100 bps QoQ.
In order to retain key talent , company has undertaken several measures like special variable pay in last quarter, cash and stock based bonus, etc
Company is currently focussing on hiring at the bottom of the pyramid and has hired ~5000 interns till now. Company’s strategy includes upskilling the employees from bottom end of the pyramid.
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