Margin pressure hits Tech Mahindra hard

Mumbai: Software exporter Tech Mahindra on Monday reported a 16.4 per cent slide in June quarter net at Rs1,132 crore as its profit margins narrowed due to a slew of factors. The Mahindra group company, which is the fifth largest IT exporter in the country, had posted a net profit of Rs1,353 crore in the year-ago period. Its revenue grew 24.6 per cent to Rs12,708 crore in the reporting quarter, as against Rs10,198 crore in the year-ago period. The operating profit slid 9.2 per cent to Rs 1,403.4 crore, and the operating profit margin narrowed to 11 per cent from 15.2 per cent in the year-ago period.

Maintaining that the company has delivered on its promises, its chief executive and managing director CP Gurnani told reporters that "there is still a lot of work to be done, and specifically mentioned profitability. The company will work on all the available levers to improve profitability and is determined to deliver higher numbers on this critical aspect in the quarters ahead."

During the reporting quarter, its margins dropped due to investments it has done from a futuristic perspective, and also due to supply side concerns which typically stem from employee-related aspects like higher hiring or sub-contracting, he said. Chief financial officer Rohit Anand said the company will work on improving the utilisation and increase the offshoring mix to get a greater quantum of project work to be done from low-cost geographies like India to attain its aspiration of exiting the fiscal 2022-23 with an operating profit margin of 14 per cent. The company added 6,862 employees during the quarter to take its total headcount to 1.58 lakh. Revenues have grown across all segments for the company, barring the banking, financial services and insurance segment, which showed a nearly 3 per cent decline on a sequential basis.

Asked if the decline was due to macroeconomic concerns like higher inflation induced rate tightening in the developed world and fears of recession, its president for corporate development Vivek Agarwal said "it does not see any cut down on budgets by clients because of such fears. He attributed the slowdown to a higher revenue attained in the preceding March quarter and was called as a normalisation in the segment."

Gurnani said "the company has analysed all the macroeconomic scenarios and their likely impact on its business, and is confident of delivering stronger performance going ahead. The company is positive on the deal pipeline that it is witnessing and also more enthusiastic about converting it into contracts."

The net new deal wins came down to $802 million in the reporting quarter, as against $1.011 billion in the preceding March quarter and $815 million in the year-ago period. Anand said the $802 million included $165 million of deals in the communications segment and $645 million in the enterprise segment. Agarwal said that after having pulled off a string of acquisitions last fiscal, the company, which is carrying over $1.114 billion in cash as of June, will be more selective in its mergers and acquisition strategy going forward, and focus more on integrating the already acquired companies into a single offering for clients.