02 Feb , 2022 By : Kanchan Joshi
Investors in shares of IT services provider Tech Mahindra Ltd are disappointed with the company's margin performance in the December quarter.
On a sequential basis, Ebit margin fell by 40 basis points to 14.8%, missing consensus estimate of 15.3%. Ebit is earnings before interest and tax. Higher subcontractor costs, supply-side challenges and lower utilization due to aggressive fresher hiring, impacted Tech Mahindra's margins during the quarter. In reaction to the Q3FY22 numbers, the stock fell around 4% on the NSE in Wednesday's opening trade.
In constant currency terms, the company saw a decent 4.7% revenue growth, sequentially, led by improved growth in the communications, media & entertainment and enterprise verticals. In a post earnings conference call, the management said that it remains confident of sustaining revenue growth momentum on the back of broad-based demand across verticals.
Further, the company's net new deal wins were robust, with a total contract value of $704 milion. According to the company's management, the deal pipeline remains healthy, and it expects healthy deal win momentum to continue.
Analysts at Sharekhan by BNP, are of the view that Tech Mahindra is well-positioned to participate in the 5G opportunity across telecom service providers, ecosystem and enterprises given its sharp focus on digitisation and network integration. However, a delay in pick-up of 5G-related spends would affect revenue estimates, cautioned the brokerage house.
"Any hostile development with respect to the current visa regime would affect employee expenses as lower proportion of local resources are deployed onsite," is another downside risk for the company said the Sharekhan report on 1 February.
Meanwhile, in the last one year, the Tech Mahindra stock has rallied nearly 52%, outperforming sector index Nifty IT's 40% returns in the same span.
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