Mumbai: Tech Mahindra Ltd, India’s fifth-largest software services company, said fiscal first-quarter profit fell 8%, missing analysts estimates, on higher visa and hiring costs.

Net profit declined to 631 crore in the three months ended 30 June from 686 crore in the year-ago period, the company said on Thursday. Profit rose 2.7% from the preceding three months.

Tech Mahindra’s revenue rose 24.8% to 5,122 core. A Bloomberg survey of 41 analysts estimated revenue at 5,078.3 crore, while 38 analysts estimated net profit at 680.4 crore for the June quarter. In dollar terms, revenue rose 18.1% to $855 million in the June quarter, and 3.63% from the preceding quarter.

“Tech Mahindra reported solid revenue growth 3.7% on quarter in USD (US dollar) revenues, much ahead of our’s and Street expectations of 2.2% on quarter," Hitesh Shah, research director at IDFC Securities Ltd, said in a note to the media. “The fifth consecutive quarter of healthy deal wins was the key positive and bodes well for further rerating of the stock."

Earnings before interest, taxes, depreciation and amortization fell 13.4% to 928 crore in the June quarter, while operating profit margin narrowed 307 basis points (bps) to 18.13%. A basis point is one-hundredth of a percentage point.

The company attributed the contraction in operating margin to visa costs of $8-9 million in the quarter; the rupee’s appreciation of 2.6%, or 50 bps; transition costs of large projects of $5-7 million, and significant hiring costs, which drove utilization down in the quarter to 72% from 74% in the March quarter.

“While the decision cycle and customer creation in the telecom vertical are taking some time to translate into deal wins, we expect substantial gains once the waiting is over," said Vineet Nayyar, executive vice-chairman of Tech Mahindra. “The US has seen unprecedented return of growth, and it is only a matter of time that this will turn into demand for our services; the same goes for Europe."

The company will focus on digital initiatives and the so-called Internet of Things, and increase its presence in West Asia, Mexico and Brazil, managing director and chief executive officer C.P. Gurnani said.

“While the company has amplified its intent to be a new-age system integration and serve digital opportunities, the revenues from new deals are still largely skewed towards traditional service lines," said Sanchit Vir Gogia, chief analyst and chief executive officer of Greyhound Research.

Tech Mahindra added 3,288 employees in the June quarter, taking the company’s headcount to 92,729.

In the quarter ended 30 June, the company reduced debt to 86 crore, after repaying 277 crore. Its cash stood at 3,669 crore on 30 June.​

On Thursday, shares of Tech Mahindra declined 0.33% on BSE to 2,150, while the benchmark Sensex lost 0.74% to 25,894.97 points. The company reported its earnings after market hours. From the beginning of the year, Tech Mahindra’s stock has gained 17%, while the Sensex has advanced 23.3% and the BSE IT Index has risen 7.24%.

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