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Tech Mahindra, India's fifth-largest IT services firm, announced a significant jump in its net profit for the December quarter, showcasing a robust financial performance. The company reported a 93% increase in net profit, reaching Rs 983 crore, a considerable leap from the Rs 510 crore recorded in the same period the previous year. This impressive growth is largely attributed to a low base effect stemming from the comparatively weaker performance in the year-ago quarter. While the current quarter's profit is lower than the previous quarter's Rs 1,250 crore, the substantial year-on-year growth signifies a positive trend in the company's financial health. This positive trend is further reinforced by the increase in operating profit margin, which improved from a low of 5.4% last year to a healthy 10.2% in the December quarter. This margin expansion demonstrates Tech Mahindra's improved efficiency in service delivery and cost optimization strategies.
The company's revenue from operations also experienced a modest increase of 1.4%, reaching Rs 13,286 crore. While this represents a slight sequential dip compared to the previous quarter's Rs 13,313 crore, it is important to note that senior executives attributed this dip to cross-currency headwinds, a common challenge in the global IT services industry. These headwinds highlight the complexities of operating in a globally interconnected market, where fluctuations in exchange rates can significantly impact revenue figures. Despite this slight dip, the overall revenue growth demonstrates the company's continued ability to secure and maintain contracts, indicating a healthy level of demand for its services.
A key factor in Tech Mahindra's financial success lies in its effective cost management. The cost of services decreased by 5.1% year-on-year, reaching Rs 9,456 crore. This demonstrates the company's commitment to optimizing its operational efficiency and controlling expenses. This cost reduction, in conjunction with the improved pricing strategies and efficient service delivery, played a crucial role in driving the substantial expansion of the operating profit margin. The company's leadership highlighted that the focus remains on sustainable growth, avoiding the pursuit of 'low-quality' deals that might artificially inflate short-term profits. This emphasizes a long-term strategic vision centered around sustainable growth and profitability.
Looking ahead, Tech Mahindra's CEO and MD, Mohit Joshi, expressed optimism about the company's future prospects. He indicated that the company aims to further increase its operating profit margin, projecting a target of 15% by FY27. This ambitious target is underpinned by the belief that the company has sufficient levers to continue expanding its margins. This confidence stems from the company's ability to secure significant new deals, totaling $745 million across the telecom and manufacturing sectors during the reporting quarter. These new deals demonstrate the company's ability to attract and retain clients, highlighting the strength of its service offerings and market competitiveness.
The performance across various sectors was mixed. The banking, financial services, and insurance (BFSI) vertical led the revenue growth, showcasing the strong demand for Tech Mahindra's services within this sector. Conversely, the automotive sector posed some challenges, highlighting the impact of broader industry dynamics on the manufacturing segment. The company's workforce also saw growth, with plans to add 6,000 freshers, with over 4,700 already inducted in the first nine months of the fiscal year. This reflects the company's commitment to expanding its workforce to meet the growing demand for its services. Despite the positive financial results, the company's scrip closed 1.81% down on the BSE on Friday, which is in contrast to the overall market sentiment.
In conclusion, Tech Mahindra's Q3 results illustrate a compelling narrative of financial growth and strategic success. The significant jump in net profit, coupled with the expansion of operating profit margins, signifies the company's ability to navigate challenges, optimize its operations, and effectively leverage market opportunities. While cross-currency headwinds and sector-specific challenges exist, the company's commitment to sustainable growth and strategic cost management positions it for continued success in the future. The ambitious margin targets suggest a confident outlook and highlight the company's focus on long-term value creation for its stakeholders. The success in securing new large deals further strengthens this positive narrative, signifying the company's ability to successfully compete in a dynamic and evolving market landscape.
Source: Tech Mahindra Q3 net profit zooms 93% on low base, profit margins expand