Tech Mahindra rallies 6% post strong Q1 earnings release

Shares of Tech Mahindra rallied nearly 6% Tuesday after the IT major reported better-than-expected earnings for the fiscal first quarter to June 30.
The Mahindra & Mahindra group companies stock gained as much as 5.77 percent to hit an intraday high of Rs 702.40 on the BSE.
On Monday, Tech Mahindra reported a
net profit of Rs 972.3 crore in the quarter ended June 2020, a rise of 20.9 percent from Rs 803.9 crore in the previous quarter.

Revenue from operations during Q1FY21 dropped 4% to Rs 9,106.3 crore from Rs 9,490.2 crore quarter-on-quarter (QoQ). Revenue in dollar terms fell 6.7% to $1,207.5 million from $1,294.6 million, on a sequential basis.
The IT firm demonstrated operational resilience through cost optimization amid demand uncertainty and volume reduction. Cash conversion has been strong, while it aims to improve profitability margins as demand normalises.
The company exhibits strong financial as visible through the several contours during Q1FY21 results that are similar to peers. A sharp revenue decline, strong cost control (Ebit margin was stable QoQ at 10.1%) and healthy cash generation (FCF was up 55% QoQ) are some of the factors the company has presented during the quarter under review.

However, it fell short of giving visibility on the trajectory of the recovery. The deal wins were relatively subdued ($290 million, down 43% QoQ) and historical volatility in its margin limits confidence in the quantum of expansion.

Tech Mahindra’s margin may improve on lower travel, facility expenses, higher offshoring and automation. Relatively higher client concentration and the resultant impact on pricing and working capital were key concerns initially.

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