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Tech Mahindra - Riding the 5G boom?`

Being the flagship IT company of the Mahindra and Mahindra group, Tech Mahindra has evolved into one of the largest companies in India. The company began as a joint venture between the Mahindra group and British Telecom, in 1986. However, the firm only saw unprecedented growth after the acquisition of Satyam Computers in 2010. Later, Tech Mahindra executed a series of acquisitions in the telecommunication services and financial software space. Currently, the company's revenue is divided up by 41% of sales from the communications business, 18% from the manufacturing business, 13% from financial services software and 12% from sales in the healthcare industry. Additionally, 75% of the revenue comes from the export of services, with 50% of sales coming from North America, while 25% of sales stem from Europe.

Apart from being a well diversified software firm, Tech Mahindra is also dedicated to bringing evolutionary mindsets and ideas to the Indian job market. It was ranked the 21st best company to work in India. Furthermore, it also invested over 1000 crore in CSR this year.

The leadership of the company consists of Anand Mahindra as the chairman of the board, and Chander Gurnani as the CEO of the firm. C.P Gurnani took charge in 2012, shortly before the acquisition of Satyam Computers and has been ranked the best CEO in the IT space for three consecutive years by Business Today.

With a ~40% revenue coming from the telecom industry, and with clients such as AT&T, Vodafone and Philips the company may be well set to benefit from the rise in 5G technology all over the world. We must now study the financials, to understand the fundamental strength of the company.

Balance Sheet

This year, Tech Mahindra saw a surge in borrowing, looking at the sharp increase in 'Other Long Term Liabilities' and 'Short Term Borrowings'. Both of which have mainly shaped up due to an increase in lease liabilities of Rs. 800 crores, an increase in contractual obligations Rs 700 crore, and a spike in bank loans ranging at the rate of 1-10% p.a of Rs 1,100 crore. This is quite a concerning factor as the total liabilities still stand at about Rs 18,500 crore, however many of these liabilities may not be damaging to the company as they are either on very low interest rates, or fall under lease payables or fall under contract obligations. At the moment the finance costs of the company make up a very small proportion of the business and hence this borrowing could be overlooked at the moment.

Income Statement

Revenue is steadily increasing year on year even with the burden of the last quarter of FY 2020. However, the profit has slowed and in fact dipped to Rs 3,900 crore from Rs 4,300 crore in the last year. This was mainly due to increasing employee costs, increased freelancing fees as well as a surge in general administration costs, dubbed as 'Other Costs'. There is no grave problem that can be seen from this income statement, and as revenues start to rise at an even faster rate after the lockdown, the company may be able to go back to an increasing rate of profit YoY.

Shareholding Patter

64% of the company's shares are with public holders, while the rest are with the promoters of the company. Being part of one of the largest conglomerates in India, 52% out of the 64% with the public, is held by Mutual Funds (8.1%), Foreign Portfolio Investors (39.6%) and Insurance Firms (4.4%). This shows that almost 50% of the company is under the control of institutionally backed investments, and with such a large holding in the company, it gives good confidence to us investors.


In conclusion, this year has been rather satisfactory for Tech Mahindra. Seeing a surge in non-current liabilities, although mostly they may not be a burden on finance costs, may have an effect on the company's cash flow in the future years. Secondly, the fall in profit YoY is not a good sign on the long term growth prospects of the company, however I believe that this can be overlooked looking at the tightening of revenues during such an uncertain time. I believe that if Tech Mahindra can go back to its levels of growth, it can really be well positioned to evolve and play a crucial role in 5G technology, in multiple locations all around the world.

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