Tech Mahindra expands margin in a quarter of acquisitions

• Tech Mahindra margins expanded by a massive 390 basis points.
• Its revenue also improved over the last quarter, growing by 2.9% in constant currency (CC).
• For shareholders, Tech Mahindra announced a special dividend of ₹15 per equity share of ₹5 each.

Tech Mahindra posted a profit of 9.5% over the last three months as compared to the previous quarter. The company’s revenue also showed signs of recovery with a quarterly growth of 2.9% in constant currency terms.

The biggest jump, however, was in Tech Mahindra margins. The freeing up of supply chains and better acclimation to working from home has expanded its margins by 390 basis points (bps) - beating market estimates. One hundred bps make up 1%.

“We’re seeing margins expand across all buckets,” said Tech Mahindra CFO Manoj Bhat during the second quarter earnings call. “As a team, we’re looking to see how we can further improve these margins.”

For shareholders, Tech Mahindra announced a special dividend of ₹15 per equity share of ₹5 each. It will be paid on November 12 to equity shareholders of the company who own the shares of the company as of November 2.

The earnings are a marked improvement over last quarter, when Tech Mahindra saw bottlenecks in its largest vertical, which accounts for 40% of its revenue — communications.

It brought in new deals worth $121 million. Tech Mahindra CEO CP Gurnani said that the company witnessed stronger growth in the US and emerging markets while Europe lagged behind. “I believe Europe will come back much stronger,” he said.

This quarter momentum returned with the company raking up acquisitions. Just ahead of its earnings, Tech Mahindra announced the $3 million acquisition of VitalTech Holdings for 6.3% of its equity shares. It hopes to close the deal with the healthcare firm by 26 October 2020, so that it will reflect in the third quarter earnings. Tech Mahindra has also kept the option to invest an additional $5 million before January 2021, which would account for a total of 8% of VitalTech Holdings’ equity shares.

In the second quarter, it acquired Momenton, a digital enterprise technology firm, and Tenzing Limited, a technology consulting company in the second quarter. “The acquisition of Momenton and Tenzing are in line with our strategy to strengthen our digital capabilities, and offer our client end-to-end transformation services,” said the Head of Corporate Development and Global Head for Healthcare and Financial Services at Tech Mahindra.

(developing story)

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