Tech Mahindra Q1 Results Review

Tech Mahindra Ltd. reported revenue of $1.56 billion, up 0.7% QoQ in constant currency and reported terms, above our and consensus estimates of 0.3% and 0.5% QoQ CC growth.

The growth was aided by strong performance in retail, healthcare and manufacturing segment, the pace of decline in communication decelerated further, down 2% QoQ/down 10% YoY.

The strong margin expansion of 110 bps QoQ was a positive surprise despite the headwinds of seasonality in Comviva business (-50 bps QoQ) and higher visa expenses (-30 bps QoQ). The total contract win of $534 million, up 6.8% QoQ was the second successive quarter of $500 million plus total contract win.

The progress on cost rationalisation was remarkable in Q1 despite having growth challenges and margin headwinds. Baring communications, the growth for enterprise business (2.1% QoQ) was broad-based across verticals.

The strategic plans laid out in Q4 have witnessed good progress in term of integrating portfolio business and mining strategic accounts, evident through elevated deal TCV and broad-based recovery, even pruning the tail accounts have largely stabilized.

With new leadership team and delivery partners in place, it has started chasing multi-tower deal of $25 million plus. However, the management indicated that it would priorities margins over growth, it would filter out deals having negative cash outflows and low margins.

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