Company's margin fell 390 bps to a lowly 15.2% (Photo: Reuters)
Company's margin fell 390 bps to a lowly 15.2% (Photo: Reuters)

Tech Mahindra Q1 net profit rises 7% to 959 crore

  • Revenue grew by a slower 4.55% to 8,653 crore on annual basis but fell 2.69% on a sequentially
  • The company closed $475 million worth of deals in the reporting quarter

Mumbai: The fifth largest software exporter Tech Mahindra Tuesday reported a tepid 7 percent rise in June quarter net income at 959.3 crore, restricted by crimping margin that fell 390 bps to a lowly 15.2 percent.

The Mahindra group company, however, sounded confident of accelerating growth going forward, with managing director and chief executive CP Gurnani mentioning that the company is in the "final stages" of negotiating at least two large deals.

In a first, he also disclosed that they closed $475 million worth of deals in the reporting quarter.

Revenue grew by a slower 4.55 percent to 8,653 crore on annual basis but fell 2.69 percent on a sequentially.

As against March quarter, its margin printed at 15.2 percent, down 3.9 percent on sequentially and slipped 1.70 percent annualised. The average industry margin is over 24 percent for the peers.

Chief financial officer Manoj Bhat explained that there was a 100 bps impact on margins each due to wage hikes and seasonal weakness in its largest revenue contributing communications business, while there was another 50 bps impact each on US visas fees and rupee gains during the quarter.

"We are optimistic about the communications vertical and growth over the next three quarters...this year we will focus on growth," Gurnani told reporters.

He said there was a "temporary sluggishness" in the enterprise segment which hit revenue.

Pointing to the two large deals under negotiations now, he said the pipeline is also good on deals and also on acquisition prospects.

To a question on profitability, he said the company has to balance between transition for large deals and also pursuing digital business, which has now grown to 36 percent of the total revenue pie.

The company will continue to work on margin levers, he said specifying it will not look specifically at utilisation levels which go down as employees get trained for the future.

Utilisation level for its 1.25 lakh employees came down to 82 percent from 84 percent a year ago.

Meanwhile, the company also announced the acquisition of a Boston- based firm MadPow, a strategic design consultancy, for an undisclosed sum.

The company counter closed 0.93 percent down to 640.30 on the BSE, as against a 0.77 percent correction on the benchmark.