tech mahindra ltd share price Management discussions


ABOUT TECH MAHINDRA:

Tech Mahindra offers innovative and customercentric digital experiences, enabling enterprises, associates, and the society to Rise. We are a USD 6 billion organization with over 150,000 professionals helping 1,247 global customers, including Fortune 500 companies. We are focused on leveraging next- generation technologies including 5G, Blockchain, Quantum Computing, Cybersecurity, Artificial Intelligence, and more, to enable end-to-end digital transformation for global customers. Tech Mahindra is the only Indian company in the world to receive the HRH The Prince of Wales Terra Carta Seal for its commitment to creating a sustainable future. We are the fastest growing brand in Rsbrand strength and amongst the top 7 IT brands globally. With the NXT. NOWTM framework, Tech Mahindra aims to enhance ‘Human Centric Experience for our ecosystem and drive collaborative disruption with synergies arising from a robust portfolio of companies. Tech Mahindra aims at delivering tomorrows experiences today and believes that the ‘Future is Now.

We are part of the Mahindra Group, founded in 1945, one of the largest and most admired multinational federation of companies with 260,000 employees in over 100 countries. It enjoys a leadership position in farm equipment, utility vehicles, information technology and financial services in India and is the worlds largest tractor company by volume. It has a strong presence in renewable energy, agriculture, logistics, hospitality and real estate. The Mahindra Group has a clear focus on leading ESG globally, enabling rural prosperity and enhancing urban living, with a goal to drive positive change in the lives of communities and stakeholders to enable them to Rise.

GLOBAL OUTLOOK

We entered 2022 with the hopes of putting behind the COVID related uncertainties on the back of vaccine roll out programs and well-established CAB protocols, only to witness heightened geopolitical tensions with Russia-Ukraine war in February 2022. The War has led to a surge in energy and commodity prices, further disruption in supply chain and trade flows for many sectors and have pushed global economies back to uncertainty. With inflation turning out to be persistent and broad-based and well above targets, major advanced economies quickened the pace of unwinding of their ultra-accommodative monetary policies. A number of emerging market economies (EMEs) have been in a tightening mode since 2021, and more are expected to follow. Equity markets have seen sharp corrections since the start of the calendar year with the market volatility index rising to a one- year high amidst geopolitical tensions. Currency markets have turned highly volatile in response to these developments.

Against this backdrop, GlobalData forecasts that the world economy will grow at a slower pace of 3.5% in 2022 following a 5.9% growth in 2021. Asia-Pacific will be the fastest growing region in 2022 with the real GDP growth rate forecast at 4.3%, followed by Middle East and Africa at 3.9%, North America at 3.5%, West Europe at 3.4%, Africa at 3.4%, Latin America at 1.9% and East Europe at -1.6%.

INDIAN ECONOMY OUTLOOK:

Economic activity which was recovering with the ebbing of the third wave, rapid stride towards universal vaccination, and supportive fiscal and monetary policies - now faces significant headwinds from the exacerbating geopolitical developments and the accompanying sharp rise in global commodity prices and weakening global growth outlook.

India saw a real GDP growth of 8.9% in FY 2021-22, higher than the pre-pandemic growth rates by 1.8%. We became amongst the top 4 largest forex reserves holding countries in the world as the forex reserves crossed USD 600 bn. Combination of high foreign exchange reserves, sustained FDI flows, and rising export earnings will provide adequate buffer against possible global liquidity tapering in FY 2022-23. The average headline inflation moderated to 5.2% in FY 2021-22 (April - Dec 2021) from 6.6% in the corresponding period of the year before, mostly due to easing food inflation guided by proactive and effective supply side management. However, with the pick-up in economic activity and sharp increase in international prices of crude oil and other imported inputs, inflation is expected to rise in FY 2022-23.

FY 2021-2022 has also been exceptional for the Indian capital markets as benchmark Sensex and Nifty scaled to touch the peaks of 61,766 and 18,477 respectively. A record Rs 891 bn (USD 12 bn) was raised via IPOs in the period April-November 2021. .

While Indias direct trade and financial exposures are modest, indirect spillovers from the slowing global economy, the sharp jump in commodity prices across the board and elevated risk aversion and uncertainty owing to geopolitical developments weigh heavily on the outlook.

IT SERVICES GROWTH OUTLOOK

The worldwide enterprise IT spending is forecast to grow by 7.4% in constant U.S. dollars during 2021, with an expected five-year compound annual growth rate of 7.04% in constant currency through 2025.

Total Enterprise IT Spending by Verticals, Worldwide

Note: The size of each bubble represents 2020 end-user spending by vertical in constant US dollars.

The total world enterprise spends on IT are likely to reach closer to USD 4 tn by 2025. The BFSI segment will continue to be highest spending enterprise for IT services, driven by continuously expanding digital capabilities in financial services organizations. BFSI companies (including insurance companies) IT spend is likely to cross USD 1 tn by the year 2025. The IT spends by CME segments are also expected to cross USD 700 bn mark in the year 2025 being on the cusp of 5G led transformations.

Growth in world-wide enterprise IT spend

Enterprise segment YOY 2022 CAGR 2021-2025
BFSI & Insurance 7.7% 6.7%
CME 7.7% 7.7%
Government 6.6% 6.1%
Manufacturing & Natural resource 5.8% 5.4%
Energy & Utilities 9.1% 9.9%
Others 8.0% 7.3%

OUR PERFORMANCE

Tech Mahindra consolidated revenue for FY 2021-22 was Rs 446,460 mn (USD 5,997.8 mn), up 17.9% from INR 378, 551 mn (USD 5,111 mn) last year. The consolidated profit after tax was Rs 55,661 mn (USD 746.4 mn) as against Rs 44,281 mn (USD 597.8 mn) last year.

The Company has reported new deal wins with TCV of over USD 3.3 bn for the FY 2021-22 as against new deal TCV of USD 2.2 bn reported in FY 2021 (up 50% YOY) which shows our strong solutioning approach helping customers transform their business.

STRATEGY FOR THE ORGANIZATION:

The acceleration in digital transformation for world enterprises which started with the onset of the pandemic, is likely to continue in the subsequent years. These trends reinforce the need for technological evolution and reinvention of operating models. This has created a gamut of new opportunities for us to create value and help our clients to navigate this wave.

We will continue to leverage our rare combination of connectivity and experience as our endowment which along with our big bets on Cloud and Engineering form our NXT.NOW strategy. We are now embarking on multiple initiatives to modernize our delivery model and upskill our talent to deliver customer excellence.

We will continue to scale across the enterprise verticals of CME, BFSI, Healthcare & Lifesciences, Manufacturing and Hi-Tech; and strengthen our capabilities in digital technologies of the future such as Cloud, D&A, ESRM and XDS. We will continue to build Saas platform-based offerings for our customers.

We will continue to grow by way of inorganic acquisitions to bolster our capabilities across our key bets and strategic opportunities.

KEY RISKS:

Risk Impact Mitigation Strategy
Supply side risks The industry depends on availability and utilization of skilled talent for timely delivery of services and solutions to its clients. The revival of growth in the sector has resulted in high attrition levels. Cost effective hiring and retaining increased number of professionals with the required skillset is a challenge. -We continue to invest in upskilling our associates and help them attain niche skills.
- We have rolled out well curated incentive schemes to ramp up our hiring process.
- We have also expanded our operations to Tier II cities in India and abroad to attract niche talent which prefer to work from home locations.
M&A Integration risks The company has a focused M&A strategy and has acquired various companies in the past years. Integration of these companies involve risks of failure of achieving strategic objectives, financial loss, culture, and financial integration -We have a well -defined M&A strategy which has led to successful acquisitions and integrations for the past several years.
- We undertake extensive due diligence, take opinions of bankers, advisors and subject matter experts, post which the deal in evaluated and approved by the Board
- We strategically focus on integration to drive synergies. This approach has helped us reap the desired outcome from acquisitions done so far.
Impairment Risk The carrying value of our M&A related investments is subject to impairment in the event that the business performance and valuation of acquired companies declines The company regularly carries out valuation exercises on all past acquisitions and a dedicated team monitors business performance of the acquired portfolio. Wherever business performance is lagging, corrective actions are identified and tracked.
Currency risks The company earns revenues from outside of India and hence is exposed to currency fluctuation risks. -Our revenue comes from diverse regions and hence impact of any one currency is restricted
- The impact of currency fluctuation on revenue from onsite activities get mitigated by costs incurred onsite as well
- We manage currency risks by way of our well- established hedging policy. We undertake speculative hedging only to protect our revenues from adverse currency movements and do not undertake any speculative hedging
Competition and technology risks The company operates in an industry prone to frequent changes and rapid evolution. Companys inability to adapt, upskill and develop newer capabilities can result in loss of market share to competition. We are investing in developing and acquiring newer capabilities to cater to the evolving needs of our clients. The company has invested in curated programs to incentives its existing workforce to upskill. We have acquired niche companies in recent years to scale up in the areas of Cloud, Engineering, Network Services and XDS.
Compliance risk The company operates in multiple countries via subsidiaries and branches. This results in an increase of compliance checks required for the consolidated business, failure of which could result in penalties, reputational damage and possible business disruptions. The company has a global compliance monitoring system and monitors compliance centrally. This compliance system is sequentially rolled out to cover new acquired entities one by one.
Periodic compliance reviews and Strong Governance at executive and board level through various committees ensure effective monitoring over this risk.
Service delivery, litigation, and regulatory risks The Company has operations in over 90 countries and works with over 1000 customers. It is thus prone to risks arising out of contract execution, IP related, regulatory compliances, employment related, adverse rulings, mergers etc. We have built an in-house legal team spread across regions and catering to all kinds of risks relevant to our business.
We also seek expert opinions from global law firms, compliance, and tax advisors in the respective areas as and when required.
We have a robust framework of dealing appropriately and in a timely manner to all litigation risks arising either internal or external to the company
Cyber security risks There is a phenomenal increase in cyberattack incidents globally since the onset of the pandemic. The ever-evolving nature of these technologies makes the company forever prone to phishing or ransomware threats. There is a risk of loss of the Company or its clients data by way of such attacks, or by way of exfiltration by associates We have implemented data protection and privacy controls such as encryption, data leakage prevention, and supplier risk management. Risk mitigation through cyber security tools and controls such as firewall, antivirus, encryption, user awareness, etc.
Climate change risks Water scarcity, high water prices, water and air pollution may impact associate health & wellbeing, leading to loss of work continuity (attendance). Shift in sea level rise, precipitation patterns and air pollution will affect assets and compromise operations, eventually making an economic impact The Company believes in circular economy with our focus on reduce, reuse, recycle and recover. Regular scenario/sensitivity analysis and stress testing is carried out, to ensure that water, air quality and environment policies, along with initiatives and campaigns to combat climate change, are implemented.
Regular disaster drills and data backups are conducted. The Company has adequate business continuity and disaster recovery plans, and showed resilience to emerge strong from the COVID-19 pandemic.
Increased or mandated Carbon price, shift in customer preferences to be ecoconscious customers and their demand for only sustainable solutions could impact revenue.
We are committed to reducing our carbon footprint through investments in low carbon technology, which are being funded by internal Carbon Price, which is already implemented.
High cost of transition to lower emission technology.
Increased prices/taxes on fossil fuels (petrol & diesel) Increased energy cost
Global economy & geopolitical risks The world is currently grappling with the double whammy of a health crisis and a war. The series of reactive actions taken by various countries have eventually led to disrupted supply chains and an environment of economic uncertainty. These uncertainties can translate into clients cutting down or pushing back their IT spend budgets thereby impacting our revenue. We have a global and diverse client base which restricts the impact of external events on our revenue. Our business models have evolved over decades and can navigate changing business sentiments and economic cycles.

Discussion on Financial Performance with respect to Operational Performance

OVERVIEW

The financial statements have been prepared in compliance with the requirements of the Companies Act, 2013 and as per Indian Accounting Standards (IND AS) for the year ended March 31, 2022.

The financial statements of Tech M and its subsidiaries have been consolidated on a line-by-line basis by adding together like items of assets, liabilities, income, expenses, after eliminating intra-group transactions and any unrealized gains or losses in accordance with the Indian Accounting Standard - 110 on "Consolidated Financial Statements" (IND AS 110).

The discussion on financial performance in the Management Discussion and Analysis relate primarily to the standalone accounts of Tech Mahindra Limited. Wherever it is appropriate, information pertaining to consolidated accounts for Tech Mahindra Limited & its subsidiaries is provided for the current year and previous year. For purpose of comparison with other firms in this industry as well as to see the positioning and impact that Tech Mahindra Limited has in the marketplace, it is essential to take the figures as reflected in the Consolidated Financial Statements.

A. STANDALONE FINANCIAL POSITION

1. Share Capital

The authorized share capital of the Company is Rs 8,337 Million, divided into 1,667,300,000 equity shares of Rs 5 each. The paid-up share capital stood at Rs 4,859 Million as on March 31, 2022 compared to Rs 4,841 Million as on March 31, 2021. The increase in paid-up capital during the year is due to the issue of 3,573,412 shares on account of conversion of options into shares (Rs 18 Million) by employees under the Employee Stock Option Plans.

2. Reserves and Surplus

a) Securities premium account

The addition to the securities premium account of Rs 2,195 Million during the year is due to the amount transferred from share option outstanding account on exercise of stock options to the tune of Rs 1,380 Million, transfer from Share Application money pending allotment Rs 814 Million.

b) Retained Earnings

The surplus in the Statement of Profit and Loss as on March 31, 2022 was Rs 212,551 Million compared to Rs 200,874 Million as on March 31, 2021.

3. Right Of Use Liabilities

In compliance with the new accounting standard IND AS 116 Lease accounting, Right of Use ("ROU") liability has been recognised with effect from April 1, 2019. Balance of ROU Liability as on March 31, 2022 is shown in the table below:

(Rs in Million)

ROU Lease liabilities As at March 31
2022 2021
Long Term 3,441 3,497
Short Term 1,734 1,691
Total 5,175 5,188

4. Fixed Assets

The movement in Fixed Assets is shown in the table below:

(Rs in Million)

FIXED ASSETS As at March 31
2022 2021
Gross Book Value
Land - Freehold 459 459
Buildings 21,774 21,757
Leasehold Improvements 783 714
Plant & Equipments 14,999 14,958
Computer equipments 21,469 17,424
Office Equipments 1,982 1,894
Furniture and fixtures 6,897 6,933
Vehicles 174 173
Intangible assets 12,577 11,055
Total 81,114 75,367
Less: Accumulated 55,144 50,628
depreciation & amortization
Net block 25,970 24,739
Add: Capital work-in- 1,322 1,114
progress
Net fixed assets 27,292 25,853

The Net Block of Fixed Assets and Capital Work in Progress stood at Rs 27,292 Million as on March 31, 2022 as against Rs 25,853 Million as on March 31, 2021. During the year, the Company incurred capital expenditure (gross) of Rs 5,893 Million (previous year Rs 2,577 Million). The major items of Capital Expenditure include addition to Computers Rs 4,442 Million & Software Rs 1,047 Million.

5. Right Of Use Assets

In compliance with the new accounting standard IND AS 116 Lease accounting, Right of Use ("ROU") Assets has been recognised with effect from April 1, 2019. Balance of ROU Assets as on March 31, 2022 is Rs 4,659 Million as against Rs 4,680 Million on March 31, 2021.

6. Investments

The summary of Companys investments are given below

(Rs in Million)

INVESTMENTS As at March 31
2022 2021
Non Current Investments
Investment in Subsidiaries 121,611 78,575
Investment in Non convertible debentures, Associates & others (treasury bonds & bills) 6,227 5,233
Total Investments 127,838 83,808
Less : Provision for diminution of value 12,189 8,827
Net Non Current Investments 115,649 74,982
Investment in property 797 891
Total Non Current Investments 116,446 75,873
Current Investments
Investment in mutual funds 26,300 80,794
Term Deposits with Financial Institutions 2,500 8,000
Investment in non-convertible debentures and commercial papers 3,763 1,748
Total Current Investments 32,563 90,542
Total Investment 149,009 166,415

Total investments (non-current) as on March 31, 2022 stood at Rs 116,446 Million as against Rs 75,873 Million, as on March 31, 2021. During the year, Current Investment in Non-Convertible Debentures & Perpetual Bonds increased to Rs 3,763 Million as on March 31, 2022 as against Rs 1,748 Million as on March 31, 2021. Investment in Subsidiaries increased to Rs 121,611 Million as on March 31, 2022 as against Rs 78,575 Million as on March 31, 2021. Diminution in value of investments in subsidiaries increased by Rs 3,363 Million during the year.

Investment in liquid mutual funds as at March 31, 2022 was Rs 26,300 Million (previous year Rs 80,794 Million), decrease of Rs 54,494 Million, decrease in Term Deposits with Financial Institutions is Rs 5,500 Million and increase in Current Investment in non-convertible debentures and commercial papers is Rs 2,015 Million.

Investment in Subsidiaries

The Company invested in the following subsidiaries during the FY 2021-22:

I. Pursuant to a share purchase agreement, the Company through its wholly owned subsidiary, Tech Mahindra London Limited acquired 100% stake in Com Tec Co IT Ltd., Cyprus & its subsidiaries on January 17, 2022, for a consideration of EUR 304 Million (Rs 25,786 Million) out of which EUR 227 million (Rs 19,260 Million) was paid upfront. The agreement also provides for contingent consideration linked to financial performance from calendar years from 2021 to 2024. As on the acquisition date, contractual obligation towards the said acquisition amounts to Euro 78.44 Million (Rs 6,526 Million). [As at March 31, 2022 Rs 6,592 Million]. Currently, the Company has accounted this acquisition on the basis of provisional purchase price allocation.

II. Pursuant to a share purchase agreement, the Company through its Wholly owned subsidiary Tech Mahindra (Americas) Inc., acquired 100% stake in Digital OnUS Inc., USA, on May 7, 2021, for a consideration of USD 110 Million (Rs 8,319 Million) out of which USD 90 Million (Rs 6,550 Million) was paid upfront. The agreement also provides for contingent consideration linked to financial performance, new customer count and employee headcount from Financial Years March 31, 2022 to March 31, 2024. As on acquisition date, contractual obligation towards the said acquisition amounts to USD 20 Million (Rs 1,478 Million) [As at March 31, 2022 Rs 1,887 Million]. Currently, the Company has accounted this acquisition on the basis of provisional purchase price allocation.

III. Pursuant to a share purchase agreement, the Company acquired 100% stake in Green Investment LLC and its subsidiaries in USA, through its wholly owned subsidiary, Tech Mahindra (Americas) Inc., on December 31, 2021, for a consideration of USD 104 Million (Rs 7,733 Million) out of which USD 91.2 Million (Rs 6,779 Million) was paid upfront.

The agreement also provides for contingent consideration linked to financial performance for the Financial Years March 31, 2023 to March 31, 2025. As on acquisition date, the contractual obligation towards the said acquisition amounts to USD 13.7 Million (Rs 1,019 Million). [As at March 31, 2022 Rs 1,449 Million].

Further, Pursuant to a share purchase agreement, the Company acquired 100% stake in Allyis India Private Limited on December 31, 2021 for a consideration of USD 2.6 Million (Rs 194 Million).

IV. Pursuant to a share purchase agreement on October 25, 2021 the Company through its wholly owned subsidiary, Tech Mahindra (Americas) Inc., acquired 100% stake in Infostar LLC, USA (d/b/a Lodestone) for a consideration of USD 88.57 Million (Rs 6,634 Million) out of which USD 58.47 million (Rs 4,379 Million) was paid upfront. The agreement also provides for contingent consideration linked to financial performance for the Financial Years ending March 31, 2022 to March 31, 2025. As on acquisition date, contractual obligation towards the acquisition amounts to USD 34.20 million (Rs 2,254 Million) [As at March 31, 2022 Rs 2,599 Million]. Currently, the Company has accounted this acquisition on the basis of provisional purchase price allocation.

The Company, pursuant to a business purchase agreement acquired 100% business of Lodestone Software Service Private Limited on October 25, 2021 for an upfront consideration of USD 6.7 Million (Rs 497.5 Million).

V. Pursuant to a share purchase agreement, the Company through its wholly owned subsidiary, Tech Mahindra (Americas) Inc. acquired on June 18, 2021, 100% stake in Eventus Solution Group LLC for a consideration of USD 37.85 million (Rs 2,804 Million) out of which USD 33.67 million (Rs 2,494 Million) was paid upfront.

VI. Pursuant to a share purchase agreement, on November 16, 2021 the Company acquired 100% stake in BrainScale Inc. in USA through its wholly owned subsidiary, Tech Mahindra (Americas) Inc. for a consideration of USD 19.1 Million (Rs 1,419 Million) out of which USD 9.6 Million (Rs 714 Million) was paid upfront. The agreement also provides for contingent consideration linked to financial performance from Financial Years March 31, 2022 to March 31, 2024. As on acquisition date, the contractual obligation towards the said acquisition amounts to USD 11.1 million (Rs 826 Million) [As at March 31, 2022803 Million] Further, Pursuant to a business purchase agreement, the Company acquired the business of M/s BrainScale on December 03, 2021 for a total consideration of Rs 154 Million. Currently, the Company has accounted this acquisition on the basis of provisional purchase price allocation.

VII. The Company through its wholly owned subsidiary, Comviva Technologies America, Inc acquired video processing platform and all related intellectual property from MK System USA Inc. for a transaction value of USD 20 Million (Rs 1,507 Million) in March 2022. The initial accounting for the business combination has been determined provisionally.

VIII. Pursuant to a share purchase agreement, on October 01, 2021 the Company through its wholly owned subsidiary, Tech Mahindra GmbH acquired 100% stake in Beris Consulting GmbH and its subsidiary in Germany for a consideration of EUR 7 Million (Rs 605 Million) out of which EUR 6 Million (Rs 519 Million) was paid upfront. The agreement also provides for contingent consideration linked to financial performance and employee headcount from July 2022 to March 2023. As on acquisition date, the contractual obligation towards the said acquisition amounts to Euro 1 million (Rs 86 Million) [As at March 31, 2022 Rs 84 Million]. Currently, the Company has accounted this acquisition on the basis of provisional purchase price allocation.

IX. Pursuant to a share purchase agreement, the Company through its stepdown subsidiary Born London Ltd, UK acquired 100% stake in We Make Website on October 25, 2021. for a consideration of GBP 10.4 million (1,074 Million) out of which GBP 5 million (Rs 516 Million) was paid upfront. The agreement also provides for contingent consideration linked to financial performance from Financial Year March 31, 2022 to March 31, 2024. As on acquisition date, contractual obligation towards the said acquisition amounts to GBP 5.40 Million (Rs 557.60 Million) [As at March 31, 2022 Rs 536 Million]. Currently, the Company has accounted this acquisition on the basis of provisional purchase price allocation.

X. Pursuant to a share purchase agreement, the Company through its wholly owned subsidiary, Tech Mahindra Singapore Pte. Limited acquired 80% stake in Geomatic. ai Pty Ltd on February 16, 2022 for a consideration of AUD 6 Million (322 Million). Currently, the Company has accounted this acquisition on the basis of provisional purchase price allocation.

7. Deferred Tax Asset

Deferred tax asset as of March 31, 2022 was at Rs 2,481 Million as compared to Rs 4,054 Million as of March 31, 2021. Deferred tax assets represent timing differences in the financial and tax books arising from depreciation of assets, provision for doubtful debts and leave encashment & gratuity. The Company assesses the likelihood that the deferred tax asset will be recovered from future taxable income before carrying it as an asset.

8. Sundry Debtors

Sundry debtors at Rs 96,658 Million (net of provision for doubtful debts of Rs 4,444 Million) as of March 31, 2022 as compared to Rs 72,388 Million (net of provision for doubtful debts of Rs 6,041 Million) as of March 31, 2021. Debtor days as of March 31, 2022 (calculated based on per-day sales in the last quarter) were 101 days as compared to 92 days as of March 31, 2021.

9. Cash and Bank Balances

The bank balances include both Rupee accounts and foreign currency accounts. The bank balances in overseas current accounts are maintained to meet the expenditure of the overseas branches and overseas project- related expenditure.

(Rs in Million)

Cash & Bank Balances As at March 31
2022 2021
Bank balances in India & Overseas
Current accounts 5,909 4,643
Deposit accounts 7,159 5,858
Total cash and bank balances* 13,068 10,501

* Including unrealised (gain) / loss on foreign currency.

10. Other financial assets, Other assets and Loans

Other financial assets, other assets & Loans as on March 31, 2022 were Rs 56,563 Million compared to Rs 49,689 Million as on March 31, 2021. Other financial assets include foreign currency derivative assets, security deposits, advances to related parties, interest receivable, lease receivable. Other assets include prepaid expenses, balance with government authorities, contract asset, advance income tax and capital advances.

11. Provisions, Financial Liabilities & Other liabilities

Liabilities and provisions were Rs 74,077 Million as of March 31, 2022 including long-term liabilities and provision of Rs 9,447 Million and short-term/ current liabilities and provisions of Rs 64,630 Million compared to Rs 66,097 Million including long-term liabilities and provision of Rs 8,175 Million and short-term / current liabilities and provisions of Rs 57,922 Million as of March 31, 2021.

B. RESULTS OF OPERATIONS

The following table sets forth certain income statement items as well as these items as a percentage of our total income for the periods indicated:

Particulars Fiscal 2022 Fiscal 2021
Rs (In Million) % of Total Income Rs (In Million) % of Total Income
INCOME
Revenue from Services 347,261 296,409
Other Income 15,228 9,218
Total Income 362,489 100% 305,627 100%
EXPENDITURE
Personnel Cost 110,542 91,626
Subcontracting Expenses 138,588 113,206
Operating and Other Expenses 38,609 36,835
Depreciation 6,599 6,623
Interest 636 632
Impairment of non-current investments 4,669 1,439
Total Expenditure 299,643 82.7% 250,361 81.9%
Profit before tax and exceptional items 62,846 55,266
Provision for Taxation 13,715 3.8% 12,875 4.2%
Net profit for the year 49,131 13.6% 42,391 13.9%

1. Revenue

The Company derives revenue principally from technology services provided to clients from various industries.

The revenue increased to Rs 347,261 Million in fiscal 2022 from Rs 296,409 Million in fiscal 2021. The increase in revenue is due to increase in number of clients served & increase in business from these clients.

Consolidated Revenue

Consolidated Revenue for fiscal 2022 was Rs 446,460 Million compared to Rs 378,551 Million in fiscal 2021, growth of 18%.

Consolidated revenue by Geography

Revenue from Americas was 47.9% in fiscal 2022 compared to 47.5% in fiscal 2021 while the share of revenue attributable to Europe was 26.2% in fiscal 2022 compared to 26% in the previous year. Revenue from Rest of the World (including India) as a percentage of total revenue was 25.8% in fiscal 2022 compared to 26.6% in fiscal 2021.

Consolidated revenue by Vertical

For fiscal 2022, revenue from Communications, media & entertainment was 40.4% compared to 40.5% in previous year. Revenue from Manufacturing was 15.8% in fiscal 2022 compared to 16.5% in fiscal 2021. Revenue from Technology was 8.9 % in fiscal 2022 compared to 8.5% in fiscal 2021. Revenue from Banking, financial services & insurance was 16.4% in fiscal 2022 compared to 16.1% in fiscal 2021. Revenue from Retail Transport & Logistics was 7.9% in fiscal 2022 compared to 7.8% in fiscal 2021. Revenue from Others was 10.6% in fiscal 2022 compared to 10.6% in previous year.

Consolidated Revenue by Segment

For fiscal 2022, 88% of revenue came from IT services, whereas 12% of revenue came from BPO services. The revenue share for fiscal 2021 from IT & BPO services was 89.9% and 10.1% respectively.

2. Other Income (Standalone)

Other income includes interest income, dividend income, foreign exchange gain/loss, rental income and net gain on disposal of assets & miscellaneous income.

Interest income mainly consists of interest received on bank deposits. Dividend income includes dividend received on long-term investments as well as that received on current investments. Exchange gain/loss consists of mark to market gain/loss on ineffective hedges, realized gain/loss and revaluation gain/loss on translation of foreign currency assets and liabilities. Other income was Rs 15,228 Million in fiscal 2022 compared to Rs 9,218 Million in fiscal 2021. The increase in other income was mainly due to higher dividend from investments, higher foreign exchange gain in current fiscal year.

3. Expenditure (Standalone)

Particulars Fiscal 2022 Fiscal 2021
Rs (In Million) % of Total Expenditure Rs (In Million) % of Total Expenditure
Personnel Cost 110,542 36.9% 91,626 36.6%
Subcontracting Expenses 138,588 46.3% 113,206 45.2%
Operating and Other Expenses 38,609 12.9% 36,835 14.7%
Depreciation 6,599 2.2% 6,623 2.6%
Interest 636 0.2% 632 0.3%
Impairment of investment in subsidiaries 4,669 1.6% 1,439 0.6%
Total Expenses 299,643 100.0% 250,361 100.0%

Personnel cost includes salaries, wages and bonus, contribution to provident fund and other funds, share based payment to employees and staff welfare costs.

Subcontracting expenses include cost of direct contractors and agency contractors to support current and future business growth.

Operating and other expenses mainly include travelling expenses, rent, repairs and maintenance, communication expenses, office establishment costs, software packages and professional fees.

Impairment of Investment in subsidiaries

The Company owns investments in subsidiaries and associates, which are accounted at cost less any provision for impairment. The Management assesses the operations of the subsidiaries/ entities, including future projections, to identify indications of diminution in the value of the investments recorded in the books of accounts. Based on the performance of subsidiaries and relevant economic and market indicators, the Company has reassessed the recoverable amount in below subsidiaries as on March 31, 2022.

Since the recoverable amount was lower than the carrying value of investments, the Company has recognised impairment loss of Rs 4,669 Million for FY 2021-22, in subsidiaries - Tech Mahindra Servicos De Informatica LTDA. Rs 1,970 Million, Tech Mahindra Thailand Rs 1,457 Million, Tech Mahindra Nigeria Rs 1,352 Million, Tech Mahindra Switzerland Rs 349 Million, Nth Dimension Rs 77 Million & impairment reversal in Mahindra Engineering Services (Europe) Limited Rs 536 Million. The impairment loss for FY 2020-21 was Rs 1,439 Million in subsidiaries Bio Agency Rs 668 Million, Mahindra Engineering Services (Europe) Limited. Rs 536 Million and Sofgen Rs 235 Million

4. Profit before tax

Profit before tax and exceptional item was Rs 62,846 Million in fiscal 2022 compared to Rs 55,266 Million in fiscal 2021. Profit before tax as a percentage of total revenue was 18.1% in fiscal 2022 compared to 18.6% in fiscal 2021.

5. Income taxes

The provision for income tax for the year ended March 31, 2022 was Rs 13,715 Million as compared to Rs 12,875 Million in the previous year. The effective tax rate in these years was 21.8% and 23.3% respectively. Lower Tax % for the year ended March 31, 2022 was due to reversal of excess tax provision of the earlier years no longer required.

6. Profit after tax

Profit after tax was Rs 49,131 Million in fiscal 2022 as compared to Rs 42,391 Million in fiscal 2021. Profit after tax as a percentage of revenue was 14.1% in fiscal 2022 and 14.3% in fiscal 2021.

Consolidated PAT

Consolidated PAT for fiscal 2022 was Rs 55,661 Million as compared to Rs 44,281 Million last fiscal 2021. PAT as a percentage of revenue is 12.5% in fiscal 2022 & 11.7% in fiscal year 2021.

C. CASH FLOW

(Rs in Million)

Particulars As at March 31
2022 2021
Net cash generated from operating activities 29,694 68,519
Net cash generated from/ (used in) investing activities 16,722 (56,208)
Net cash from/(used in) financing activities (44,571) (20,661)
Net Increase/(decrease) in cash and cash equivalents during the period 1,845 (8,350)
Effect of exchange rate changes on cash and cash equivalents 219 192
Cash and Cash Equivalents at the beginning of the year 9,880 18,038
Cash and Cash Equivalents at the end of the year 11,944 9,880

D. IN ACCORDANCE WITH THE SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS 2018) (AMENDMENT) REGULATIONS, 2018, THE COMPANY IS REQUIRED TO GIVE DETAILS OF SIGNIFICANT CHANGES (CHANGE OF 25% OR MORE AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR) IN KEY FINANCIAL RATIOS

Sr. Key Financial No Ratios * Fiscal 2022 Fiscal 2021 % Change
1 Debtors Turnover 4.1 3.7 12%
2 Inventory Turnover NA NA NA
3 Interest Coverage Ratio 218.0 161.7 35%
4 Current Ratio 2.6 3.4 -24%
5 Debt Equity Ratio # 2.0% 2.1% -3%
6 Operating Profit Margin (%) 15.2% 16.2% -6%
7 Net Profit Margin (%) 14.1% 14.3% -1%
8 Return on Net worth 19.3% 17.9% 8%

* Ratios are based on Standalone Financials

# Debt represents lease liabilities

Movements in the above ratios are not greater than 25%, hence not material except for Interest Coverage Ratio due to higher EBIT and Current ratio due to lower Current Investments (Mutual funds & Term deposit with FI) and Current liabilities (Trade payables)

E. INTERNAL CONTROL SYSTEMS

The Company maintains an adequate internal control system, which provides, among other things, reasonable assurance of recording the transactions of its operations in all material aspects and of providing protection against significant misuse or loss of Companys assets. The Company uses an Enterprise Resource Planning (ERP) package, Business Intelligence and Analytics package, which enhances the internal control mechanism. The Company also has a Chief Information Risk Officer (CIRO) and Chief Information Officer (CIO) for overseeing the Internal Control and Systems.

F. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES INCLUDING NUMBER OF PEOPLE EMPLOYED

Being an organization that focuses on staying on the cutting edge of technology, through our people, we strive to attract the best talent through intensive recruitment drives in premier engineering and management institutes. During the year, Tech M saw increase of 30,119 professionals. The global headcount of the Company as on March 31, 2022 was 151,173 as compared to 121,054 as on March 31, 2021.

The IT attrition was 23.5% during the year as compared to 13.3% in the previous year. The Company has been working towards retaining talent by investing in career development programs, talent engagement initiatives, employee well-being (personal and professional), rewards and recognition as well as an empowered work environment.

Cautionary Statement

Certain statements made in the management discussion and analysis report relating to the Companys objectives, projections, outlook, expectations, estimates and others may constitute ‘forward-looking statements within the meaning of applicable laws and regulations. Actual results may differ from such expectations, projections and so on, whether express or implied. Several factors could make a significant difference to the Companys operations. These include economic conditions affecting demand and supply, government regulations and taxation, natural calamities and so on, over which the Company does not have any direct control.