GuruFocus –
- Revenue: 1.567 billion, constant currency growth of 1.3% YoY and 1.2% QoQ.
- New Deal Wins: USD 745 million for Q3 FY25; USD 2.4 billion on an LTM basis.
- EBIT Margin: 10.2%, a 60-basis point expansion from the last quarter.
- Profitability Margin: 7.4%, increased by 80 basis points sequentially.
- Free Cash Flow: USD 199 million, 172% of PAT conversion.
- Cash and Cash Equivalents: USD 799 million.
- DSO (Days Sales Outstanding): 88 days, a reduction of six days sequentially.
- Effective Tax Rate: 23.8% for the quarter.
Release Date: January 17, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tech Mahindra (NS:) Ltd (BOM:532755) reported new deal wins of USD 745 million for Q3 FY25, marking a steady increase in large deals over the past quarters.
- The company achieved a 60-basis point expansion in EBIT margins to 10.2% despite currency headwinds, attributed to efficient delivery and cost optimization.
- Tech Mahindra Ltd (BOM:532755) has onboarded 40-plus new clients from must-have accounts in the current fiscal year, indicating successful client acquisition strategies.
- The company has made significant investments in generative AI capabilities, partnerships, and talent acquisition, enhancing its service offerings and market position.
- Tech Mahindra Ltd (BOM:532755) has been recognized for its sustainability efforts, ranking number one in India and number two globally in the Jones Sustainability Index 2024.
Negative Points
- The company faced major cross-currency headwinds, resulting in a reported revenue decline of 1.3% quarter-over-quarter.
- Manufacturing vertical revenue declined by 2.5%, mainly due to pressures in the automotive segment, including Pininfarina.
- Forex losses have been sizable for the last two quarters, impacting financial performance.
- The company anticipates a 1% to 1.5% margin impact due to wage hikes in the current quarter.
- Despite improvements, the telecom vertical remains challenged by competitive pressures and discretionary spending constraints in North America.
Q & A Highlights Q: We have seen a steady buildup of net new deal momentum over the last couple of quarters. Does this give you confidence in meeting industry average growth in the near term?
A: Rohit Anand, CFO: We are focused on quality deals, and our numbers have improved significantly, moving from $381 million in Q3 to $745 million now. This buildup in large deals gives us confidence that we can catch up with and eventually exceed peer average growth by FY27.
Q: Is there a renewed interest among global telcos in increasing discretionary spends, indicating an inflection point in the communications vertical?
A: Rohit Anand, CFO: The communications vertical is complex. While we see growing momentum in Asia Pacific and stable conditions in Europe, North America faces challenges. However, opportunities for further deterioration are limited, and we expect improvement.
Q: Can you discuss your Gen AI-related offerings and their impact in the market?
A: Mohit Joshi, CEO: We are developing horizontal and vertical solutions for Gen AI, focusing on areas like developer productivity and cybersecurity. Our differentiation lies in building sovereign large language models and small language models for specific use cases. We are also working on Agentic AI and neuro-symbolic AI to enhance explainability.
Q: How is the transformation journey progressing, and what are the key opportunities to reach the FY27 target?
A: Mohit Joshi, CEO: We have implemented a new organization structure and focused on revenue growth from large clients and must-have accounts. Our large deal momentum and BFSI growth are promising. We are building a strong team and investing in tools and platforms for sustainable growth.
Q: Are there any trends in deal renewals, and how are clients responding to productivity and pricing initiatives?
A: Rohit Anand, CFO: We see a consistent trend in renewals with healthy rates. Clients are receptive to new technology benefits, and our excellent delivery capability supports renewals. We focus on improving efficiency and utilizing automation to enhance client satisfaction.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
