Shares of India’s fifth-biggest software services provider Tech Mahindra tanked as much as 17 per cent to Rs. 357 as soon as the market opened today, eroding investor’s wealth by nearly Rs. 7,000 crore as it reported lower-than-expected fourth-quarter profit. Tech Mahindra’s profit fell 33 per cent annually to Rs. 590 crore in the January- March quarter, weighed down by weak margins and higher cost of services. Analysts polled by Reuters had expected Tech Mahindra to post consolidated profit of Rs. 783 crore. Tech Mahindra had reported its quarterly numbers after market hours on Friday.
Mumbai-based Tech Mahindra’s operating margin fell to 12 per cent in the March quarter, from 16.7 per cent a year earlier, following a $20 million hit from the company’s exit from a networking business contract, Milind Kulkarni, chief financial officer of the company, said. An appreciating rupee and a $15 million impact from “re-profiling” some of the company’s legacy business also contributed to the fall, Mr Kulkarni added.
Tech Mahindra renegotiated 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 IT company said. The impact of this “re-profiling” on the company’s finances will be visible for the next two to three quarters, Mr Kulkarni said.
Consolidated tax expenses surged 28 per cent to Rs. 232 crore, while cost of services jumped 14.7 per cent.
However, the company posted a near 10 per cent jump in consolidated total revenue, helped by growth in its European business. “The deal pipeline is stronger in emerging markets and digital transformation,” chief executive CP Gurnani said.
Domestic brokerage Nirmal Bang has retained its “sell” rating on Tech Mahindra for a target of Rs. 403. The cut in Tech Mahindra’s target price is due to “structural weaknesses because of its less diversified revenue mix, higher client concentration, lower margins and lower trending RoIC (return on capital employed),” the brokerage said.
