Mumbai: Indian telecom services provider Tech Mahindra Ltd’s consolidated net profit rose 22% to 338 crore in the June quarter from 277 crore in the year ago. Sequentially it rose 12% , helped by the strong performance of Mahindra Satyam Ltd and a currency push.

Analysts had expected a net profit of 309 crore, according to a Reuters poll of five brokerages. Revenue rose 19% to 1,543 crore.

Tech Mahindra’s campus in Pune. Photo: Hemant Mishra/Mint

“After Satyam came out with the results, we were sure (Tech Mahindra’s) bottom-line would shoot up," said Ankita Somani, research analyst, information technology and telecom, Angel Broking Ltd.

She pointed out that Satyam’s profit shows up in Tech Mahindra’s numbers since the latter has a 42% stake in Satyam.

“The major takeaway is that operating margins have improved, which have always been a concern for Tech Mahindra," she added.

The company’s earnings before interest, tax, depreciation and amortization (Ebitda or operating profit) rose 37% to 330 crore year-on-year.

Operating margins at 21.4% expanded by 440 basis points (bps) sequentially, much of it due to rupee depreciation. One bps is one-hundredth of a percentage point.

In dollar terms, revenue at $281 million was flat sequentially while in constant currency basis, it stood at $284 million. Net profit at $61 million was also flat quarter-on-quarter.

“Telecom as an industry is not performing well in terms of IT services spend, and revenues have been flat from the company’s BT business for quite some quarters," Somani said, referring to the outsourcing done by BT Group Plc to Tech Mahindra. “Hence, we should watch out for IT spend in the non-BT business, which is actually showing an improvement."

Tech Mahindra had 40,630 employees as of 30 June. Debt stood at 886 crore as of the same date, a decrease of 240 crore sequentially, while the cash and cash equivalent stood at 280 crore. Earnings per share, or EPS, stood at 26.5.

Tech Mahindra gained 0.32% to close at 761.70 on Thursday on BSE Ltd. The benchmark Sensex lost 0.23% to close at 17,560.87 points and the BSE IT index lost 0.02% to close at 5,469.36 points.

In the April-June quarter, Tech Mahindra lost 1.63%, the Sensex gained 0.15% and the IT index lost 5.21%.

“Our focus on operational efficiencies has led to margin improvement," said Vineet Nayyar, vice-chairman, managing director and chief executive officer of Tech Mahindra. “We continue to focus on expansion of our service offerings and increasing business momentum through customer centricity and increased market coverage."

Incidentally, the merger of Tech Mahindra and Mahindra Satyam, announced on 21 March, is progressing according to schedule, the company said in a statement on Thursday.

Tech Mahindra got approval from the Competition Commission of India for the merger during the quarter, while shareholders gave their approval at a court-convened meeting on 7 June.

Reuters contributed to this story

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