Tech Mahindra profit rises 33% and board recommends first bonus issue since 2015

Tech Mahindra’s profit rose by a third in the July to September quarter, and its board recommended giving shareholders one bonus share for every share they own, the company’s first bonus issue since 2015.

Net profit came to ₹1,586 crore, up 32.7% from ₹1,195 crore a year earlier and 8.2% higher than in the June quarter, the Pune-based IT company said on Thursday evening. Revenue rose 15.6% to ₹16,180 crore and was up 3% on the previous quarter. In constant currency, which strips out exchange rate swings, revenue grew 7.2% from a year earlier.

Revenue beat the Bloomberg consensus estimate of ₹16,027 crore. Profit fell short of the ₹1,642 crore analysts had expected on that measure, though it was ahead of some brokers’ forecasts made before the results.

Bonus shares and a dividend

The board approved the issue of bonus shares “in the ratio of 1:1”, with each ₹5 share earning one new ₹5 share. The issue needs shareholders’ approval, and the company will raise its authorised share capital from ₹924.3 crore to ₹1,000 crore to make room for it. The record date for the bonus will be announced later.

It also declared an interim dividend of ₹15 a share, with a record date of Friday, 23 October. Investors need to hold the stock by 22 October to qualify, and the dividend is to be paid by 13 November.

Margins edge towards the target

Operating profit, measured as earnings before interest and tax (EBIT), rose 40.5% to ₹2,387 crore. The EBIT margin widened by about 260 basis points to 14.8%, the twelfth straight quarter of improvement and about 20 basis points short of the 15% target the company has set itself.

“So far, consistently over the past 12 quarters, we have shown commitment to achieve that target,” said Mohit Joshi, managing director and chief executive.

New deals were worth $1.023 billion, up 25.4% from a year earlier. Brokers had expected a weak quarter for orders, with estimates of $0.8 billion to $1 billion. “Deal wins exceeding $1+ billion in each of the last four quarters reflect the strength of our customer relationships,” Joshi said.

Hiring and visas

The company added 5,446 people in the quarter, taking its headcount to 152,206. Attrition in IT services over the last twelve months was 11.7%. Free cash flow was $135 million, and cash and cash equivalents stood at ₹7,330 crore at the end of September.

On US visa rules, Joshi said only about 1% of the workforce was on H-1B visas. “Our dependence on H1-Bs is extremely low, making up just about one per cent of our overall workforce,” he said, adding that the company had “always been very thorough” on compliance.

Tech Mahindra’s shares closed 4.75% higher at ₹1,650 on the NSE on Thursday. Friday’s session will be the first full one in which the market can react to the numbers.