Tech Mahindra tops revenue estimates on manufacturing, weak rupee
Tech Mahindra beat first-quarter revenue expectations driven by manufacturing growth and a weak rupee, but a profit miss highlights ongoing margin pressure as the Indian IT group pivots away from its legacy communications business.
Tech Mahindra reported first-quarter revenue of 157.12 billion rupees ($1.63 billion), surpassing the average analyst estimate of 154.76 billion rupees. However, profit of 14.65 billion rupees missed the 15.63 billion rupee target, even as it rose 28.5 per cent year-on-year.
The 17.7 per cent annual revenue increase was primarily driven by a strategic pivot toward manufacturing and a significant currency tailwind. The Indian rupee has depreciated by roughly 9 per cent against the US dollar over the past 12 months. Because Indian IT service providers bill overseas clients in foreign currencies while incurring the vast majority of their operational costs in rupees, this depreciation mechanically inflates top-line figures.
Stripping away the currency benefit reveals a divergent operational picture within the company's core segments. The manufacturing division, Tech Mahindra's second-largest revenue engine, posted a robust 17.2 per cent year-on-year increase. Conversely, the communications division, which historically accounts for a third of the company's total revenue, grew by a sluggish 1.3 per cent.
This mixed performance contrasts sharply with recent results from the company's larger domestic rivals. Last week, larger peers Tata Consultancy Services and HCLTech both surpassed expectations, albeit driven by a resurgence in technology spending among financial services clients. Tech Mahindra's reliance on manufacturing growth and foreign exchange gains, rather than a broad-based IT spending recovery, will likely lead market participants to scrutinize the sustainability of its revenue trajectory.
Forward-looking indicators suggest the sales pipeline remains intact. Net new order bookings rose to $1.08 billion, up from $809 million in the same period a year earlier. The company also strengthened its technological capabilities through new partnerships announced during the quarter, linking up with Telefonica Germany, Microsoft and robotics platform Viam.
Shares in the Pune-based firm closed 1.13 per cent higher ahead of the results. The stock's reaction following the profit miss will signal whether investors are willing to look past near-term margin pressures in exchange for a strengthened order book.
