Tech Mahindra net profit falls 20% on currency loss, wage hike

Software firm Tech Mahindra on Friday reported a 20.25 per cent fall in its December quarter net profit at Rs 805.3 crore due to currency losses and wage hikes.

The IT services provider had posted a post-tax profit of Rs 1,009 crore in the year ago period.

Overall revenue grew to Rs 5,751.17 crore in the third quarter under review, up from Rs 4,898.5 crore in the year-ago period.

The operating profit was also up at Rs 1,160 crore as against Rs 1,136 crore last year.

Tech Mahindra CFO Milind Kulkarni said there was an impact of 0.20 per cent in pre-tax margins due to currency fluctuations, 1 per cent on portion of wage hikes which were unmitigated and disappearance of $9.5 million in revenues in amortisation from British Telecom, its key client.

Additionally, a sharp increase in tax provisions at Rs 251.2 crore versus the year-ago period's Rs 26.4 crore also impacted the bottomlines, but Kulkarni was quick to point out that this was due to a Rs 120 crore write-back in provisions for Satyam acquisition in the year-ago period.

The company's pre-tax margin rose 0.20 per cent to 20.1 per cent. The expansion was restricted by the adverse impact in currency deviations, even though the overall utilisation rate improved to 74 per cent.

Tech Mahindra CEO and Managing Director C P Gurnani said there is still a scope to improve margins by better utilisation, and specifically pointed to the 3-4 percentage point gap between the company and its rivals on this front.

Executive Vice-Chairman Vineet Nayyar said the impact on the currency front is likely to continue. Gurnani said 55 per cent of the company's revenues come from Europe and the rest of the world, which is facing headwinds on currency, as against 45 per cent from the USA, whose dollar is gaining territory.

The company added 2,700 employees during Q3, taking the total headcount to over 98,000, while the attrition was at 19 per cent as against 15 per cent last fiscal. Gurnani, however, said that concerns on the attrition front are unfounded, pointing to the preceding September quarter's level of 18 per cent. The Mahindra Group firm's active client number went up to 674 during the October-December period from 649 at the end of preceding September quarter.

Gurnani said the growth came from across sectors and geographies where the firm operates and its mainstay telecom reported a relatively flat growth at 0.6 per cent. The deal pipeline is looking good at present, he said.

On its $240 million acquisition of Lightbridge Communications Corporation announced in November, Gurnani said the deal will close in February and will help the company access the network engineering markets.

As of December 31, 2014, Tech Mahindra had a cash and equivalent at Rs 4,214 crore and the kitty swelled by Rs 780 crore in the quarter.

Gurnani said growing by mergers and acquisitions is a part of its strategy and the company will be looking at expanding its geographical reach and services while scouting for targets.

He, however, added that there is nothing that the company is working on at present. At a meeting held on Friday, the Board of Directors approved to issue one bonus share for every share held, and also sub-division of a single share into two.

The company scrip shed 0.83 per cent to close at 2,878.30 a piece on the BSE, whose key index Sensex plunged 1.68 per cent.