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Tech Mahindra Q4 profit dives 33% on weak margins

LiveMint logoLiveMint 26-05-2017 Samantha Kareen Nair

Bangalore/Mumbai: Tech Mahindra Ltd , India’s fifth-largest software service provider, posted a lower-than-expected fourth-quarter consolidated profit on Friday, weighed down by weak margins and higher cost of services.

Consolidated profit for the quarter ended 31 March, fell 33% to Rs5.90 billion ($91.53 million). Analysts on average had expected March-quarter consolidated profit of Rs7.83 billion, Thomson Reuters data showed.

Consolidated margin on earnings before interest, tax, depreciation and amortisation (EBITDA) fell to 12% in the quarter from 16.7% a year earlier. EBITDA took a $20 million hit which came from the company’s exit of a networking business contract, Milind Kulkarni, chief financial officer of the company said.

An appreciating rupee in the quarter and a $15 million impact from “re-profiling” some of the company’s legacy business also contributed to the fall, Kulkarni added.

The company re-negotiated contracts with some of its clients to provide traditional IT services at cheaper rates while clients assured to spend more on automation and artificial intelligence driven services.

The impact of this “re-profiling” on the company’s finances will be visible for the next two to three quarters, Kulkarni said.

Consolidated total tax expenses surged 28% to Rs2.32 billion, while cost of services jumped 14.7%.

The company posted a near 10% jump in consolidated total revenue, helped by growth in its European business.“The deal pipeline is stronger in emerging markets and digital transformation,” C. P. Gurnani, chief executive of Tech Mahindra said.Reuters

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