Tech Mahindra, one of India’s leading IT services companies, has released its financial results for the fourth quarter of the fiscal year 2024. The results present a mixed bag of outcomes for the company, showing gains in some areas while also revealing challenges in others.
Tech Mahindra, one of the leading IT services companies in India, has announced its financial results for the fourth quarter of the fiscal year 2024. Along with the results, the company has also declared a generous final dividend of 560%, amounting to Rs 28 per share. Despite these positive developments, the company faced some challenges in its earnings and revenue.
Tech Mahindra’s newly appointed CEO, Mohit Joshi, has expressed confidence and optimism for the future of the company as it steps into the fiscal year 2025. Despite facing several challenges during the fiscal year 2024, particularly within the IT services sector, Joshi anticipates an improvement in client spending that will lead to better revenue performance in the coming year.
Tech Mahindra Financial Performance
For the fourth quarter, Tech Mahindra’s net profit saw a significant decline of 41%, dropping to Rs 661 crore compared to Rs 1,117.70 crore during the same period last year. Additionally, the company’s revenue from operations fell by 6.2% year-on-year to Rs 12,871.30 crore.
The decline in profit and revenue during the quarter indicates that Tech Mahindra experienced some operational difficulties. The company’s earnings were not only lower than expected but also below the figures from the previous quarter. The EBITDA (earnings before interest, taxes, depreciation, and amortization) margin also fell from 14.7% in Q4 FY23 to 10.9% in Q4 FY24, representing a decrease of 380 basis points.
FY25 Outlook
Joshi’s optimism stems from a belief that the worst may be behind the company. He indicated that the March quarter was likely the low point for Tech Mahindra’s growth trajectory. Looking ahead, he predicts a turnaround by the second half of FY25, with the company poised to regain its growth path during that time.
Q4 Financial Results
In the fourth quarter of FY24, Tech Mahindra reported a net profit of ₹661 crore, which was lower than the expected ₹749 crore according to a CNBC-TV18 poll. Nevertheless, the company’s net profit increased by 29% sequentially. Revenue in US dollar terms stood at $1,548 million, nearly matching expectations of $1,554.5 million. In rupee terms, revenue was ₹12,871.3 crore, slightly below the estimate of ₹12,923 crore. When compared to the December quarter, the company’s revenue declined by 1.8%.
In constant currency terms, the quarter-on-quarter decline was 0.8%. This marked the third time in four quarters that Tech Mahindra experienced a decline in constant currency revenue.
Communications, Media, and Entertainment (CME) Business
Tech Mahindra’s Communications, Media, and Entertainment (CME) business, which contributes 36% of the overall topline, experienced a sequential decline of 2.8% during the quarter. Joshi emphasized the importance of the telecom business to Tech Mahindra, stating that it remains the heart of the company and will not be marginalized.
Future Plans and Growth Strategy
The company secured deals worth $500 million during the quarter and plans to grow selectively in certain markets, with a particular focus on the US and Europe. These regions together contributed to three-quarters of Tech Mahindra’s topline during the quarter, and they are expected to play a significant role in the company’s growth strategy going forward.
Financial Highlights
In the fourth quarter, Tech Mahindra reported a trading profit of Rs 639 crore, a decrease from Rs 703 crore in the previous quarter. This represents a quarter-on-quarter (QoQ) decline, reflecting some operational difficulties. Additionally, the company’s margins fell from 5.4% to 5%, further highlighting the challenges the company faces in maintaining profitability.
Despite these setbacks, Tech Mahindra’s shares showed resilience, rising by 0.34% to close at Rs 1190.10. Over the past year, the company’s shares have provided a return of 19.52% to investors, demonstrating its long-term value. The company’s market capitalization stands at Rs 1.16 lakh crore, underscoring its significant presence in the market.
Profit and Revenue Changes
Tech Mahindra’s net profit for the fourth quarter increased to Rs 661 crore, up from Rs 510.4 crore in the previous quarter—a 29% increase QoQ. This improvement in profit is a positive sign, although the overall income of the company declined from Rs 13,101.3 crore in the December quarter to Rs 12,871.3 crore in the March quarter.
The adjusted EBIT (Earnings Before Interest and Taxes) also showed a significant rise, growing from Rs 703 crore to Rs 946.4 crore QoQ. The adjusted EBIT margin increased from 5.4% to 7.4%, showcasing improved efficiency in operations.
In terms of dollar income, the company experienced a decline from $157.3 crore to $154.8 crore QoQ. On a full-year basis, Tech Mahindra’s income reached Rs 51,996 crore, down 2.4% year-on-year, while profits for the year stood at Rs 2,358 crore, reflecting a 51.2% decline YoY.
Final Dividend Announcement
In light of the challenges faced during the quarter, Tech Mahindra’s board has recommended a final dividend of Rs 28 per equity share, at a face value of Rs 5 per share. If approved by the company’s annual general meeting, the dividend will be paid to shareholders on or before August 9, 2024. This follows an interim dividend of Rs 12 per share declared in December 2023, bringing the total dividend for the financial year to 800%.
Dividend Announcement
The company has announced a final dividend of Rs 28 per share for its investors. This follows an interim dividend of Rs 12 per share declared in December 2023. In contrast, a final dividend of Rs 32 was given in April 2023. Despite the lower final dividend this quarter, it still represents a strong return for shareholders.
Leadership and Outlook
Tech Mahindra’s CEO, Mohit Joshi, acknowledged the challenges of FY24, citing global economic uncertainties as a contributing factor. However, Joshi expressed optimism about the future, anticipating an improvement in customer spending and a more robust revenue performance in the coming fiscal year. He emphasized that despite the challenges, the company continues to make significant progress in digital adoption.
In addition to the financial results and dividend announcement, Tech Mahindra also reported some changes in its leadership. The company appointed Tarun Bajaj, Neelam Dhawan, and Amarjyoti Baruva as Additional Directors (Non-Executive) and named Shikha Sharma, Hagriv Khaitan, and Mukti Khare as independent directors.
Looking Ahead
Although Tech Mahindra experienced a challenging fourth quarter, the company remains optimistic about its prospects. The expected improvement in customer spending, coupled with ongoing digital transformation efforts, provides hope for better performance in the upcoming fiscal year.
As Tech Mahindra navigates the evolving IT landscape, it will need to continue focusing on innovation and efficiency to overcome the obstacles it faces. By doing so, the company can maintain its position as a leading player in the industry and deliver value to its investors in the form of dividends and potential long-term growth.
Final Thoughts
Despite a decline in EBIT to ₹637.7 crore from the previous quarter’s ₹960 crore, Joshi remains positive about the company’s trajectory. He acknowledged the volatility in discretionary spending and limited visibility, which have been compounded by Tech Mahindra’s high exposure to the telecom vertical.
Overall, Tech Mahindra appears to be weathering the challenges of FY24 with an eye on the future. Joshi’s leadership and focus on specific markets and business areas suggest that the company is preparing for a more stable and promising fiscal year 2025. Investors can take heart in the company’s strategic approach and Joshi’s confidence as Tech Mahindra navigates the road ahead.
Tech Mahindra’s financial results for the fourth quarter of FY24 demonstrate a complex picture of growth and challenges. While the company saw a reduction in trading profit and margins, it experienced significant QoQ growth in net profit and EBIT.
Despite facing macro headwinds in the communications and media vertical, Tech Mahindra remains a key player in the IT services sector. Its long-term growth and returns are evidenced by the 19.52% rise in share value over the last year. As the company navigates these challenges, it will need to continue focusing on operational efficiency and adapting to the evolving market conditions to sustain its growth trajectory and deliver value to its investors.
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