Mumbai: The Mumbai-based information technology (IT) arm of the Mahindra and Mahindra Group, Tech Mahindra Ltd, posted a 22.5% decline in profit owing to the cost of servicing debt taken on to acquire Satyam Computer Services Ltd.
Purchase pressure: Satyam Computer headquarters in Hyderabad. Bharath Sai / Mint
Profit in the three months ended December fell to Rs172 crore from Rs222 crore in the year earlier as revenue rose 5% to Rs1,187 crore from Rs1,132 crore.
The company holds a 43% stake in the now renamed Mahindra Satyam, whose earnings will be reported separately once the audit into the fraud-hit company’s past accounts is completed.
In dollar terms, revenue grew 9% to $254 million (around Rs1,173 crore) from $232 million, while profit fell 17.6% to $37.3 million from $45.3 million.
Tech Mahindra, which had borrowings of Rs2,179 crore at the end of September, refinanced debt at the end of the last quarter to bring down the effective interest rate from 8.7% to 11%. At the end of December, debt stood at Rs1,744 crore.
Tech Mahindra’s chief financial officer Sonjoy Anand said debt would further come down to Rs1,400 crore as more had been repaid in January.
At 56% of overall revenues, Europe contributes a major chunk of Tech Mahindra’s revenues, with the the British telecom company BT Group Plc or BT being its largest client. Even as the revenue from BT has been under pressure for the past few quarters, Tech Mahindra has managed to grow its non-BT business to make up for this.
BT’s contribution to Tech Mahindra’s revenue has fallen from 57% in the third quarter of fiscal 2009 to 46% in the just completed three-month period. However, during the December quarter, the firm received a £126 million (Rs945 crore) payment from BT as a result of negotiations to restructure its existing contract.
The BT payment has helped to bolster earnings, said an analyst with a Mumbai-based brokerage who tracks the company and who didn’t want to be named.
“Numbers are looking good mostly on account of the one-time payment they have received from BT. If you take that out, it is a very disappointing performance,” he said. “The full impact of this will be visible from the next quarter onwards, when there is no such one-time payment advantage.”
The one-time payment from BT will be adjusted against future services to be delivered to that client, chief executive Sanjay Kalra said.
Kalra also said that revenue from the US and non-Europe areas, which the company clubs as the “rest of the world”, has gone up by nearly 16% during the three months to December. Contributions from the rest of the world have increased to 14%, up from from 9% in the year earlier.
Tech Mahindra’s business process outsourcing arm has hired over 2,000 people in the last three months to provide services sought by the new telecom operators who have started business in India.
Employees rose to 30,404 at the end of December from 26,515 at September-end.
The stock rose 2.75% to close at Rs1,135.35 on the Bombay Stock Exchange on Friday, when the Sensex fell 1.12%.