Tech Mahindra posts strong revenue growth in Q3; acquires Cerium Systems for $34 mn

Technology firm Tech Mahindra on Friday posted a 6.4% sequential growth in its consolidated revenue for the quarter ended December 31 and a 2% growth in its net profit. 

The Pune-based company saw a strong topline growth on the back of improvement in the telecom vertical led by favourable modifications to the AT&T deal, as per brokerage Sharekhan. Last year, Tech Mahindra inked a $1 billion multi-year deal to provide software services to the global telecom company.  

The company’s digital revenue also grew 10.6% sequentially during the quarter. Tech Mahindra’s deal wins continued to be strong at $1.23 billion.

“This is a quarter of strong growth across our communications and enterprise businesses. We continue to win marquee deals and are well poised to capitalise on new market opportunities with technology shifts like 56, which continues to be a key focus area in the year ahead,” CP Gurnani, CEO of Tech Mahindra, said.

The company’s revenue growth in constant currency terms was at 4.3% in Q3. Its revenues for Q3 stood at Rs 9,655 crore against Rs 9,070 crore in the previous quarter. Its net profit increased to Rs 1,146 crore from Rs 1,124 crore in the previous year. However, its bottomline fell nearly 5% on a year-on-year basis and its profitability declined by 30 basis points sequentially to 16.2% in Q3.

The company's total headcount was at 1,30,839 employees, a reduction of 683 from the September 2019 quarter.

“We have witnessed substantial operational and financial metrics improvement with healthy cash flow generation this quarter,” Manoj Bhat, the company's CFO, said.

70% stake buy in Cerium

The company also announced the acquisition of 70% stake in Bengaluru-based Cerium Systems in an all-cash deal for Rs 245 crore (around $34 million). Tech Mahindra will acquire the remaining stake in Cerium Systems over the next two years based on the valuation linked with the company’s financial performance. 

Founded in 2013, Cerium Systems is an integrated circuit and embedded software design service provider and had an employee base of 840 personnel with offices in Santa Clara, California and Penang, Malaysia.

The move is expected to improve Tech Mahindra’s capabilities in the semiconductor design and testing, embedded software development and product engineering, a statement said. In FY19, Cerium Systems posted a turnover of Rs 105.7 crore, higher than Rs 71 crore in the previous year. The transaction is likely to close by April 1, 2020.

“We continue to invest in emerging technologies and streamline delivery as we ready ourselves for the next phase of growth,” Bhat said.