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Tech Mahindra's results for the June quarter were boosted by non-core, unsustainable forex gains. The company reported a consolidated net profit of Rs 676 crore, up 7.2 per cent, year-on-year, and 43 per cent sequentially.
Forex gains worth Rs 93 crore pushed the bottom line 14 per cent ahead of the Bloomberg consensus estimate of Rs 593 crore. While the company had reported a forex loss of Rs 223 crore in the March quarter, analysts at Motilal Oswal Securities had assumed an other income gain of Rs 66.2 crore for the June quarter.
Revenue grew 22.9 per cent, year on year, to Rs 6,294 crore--2.9 per cent sequentially--and was also higher than the Bloomberg consensus estimates of Rs 6,218 crore.
The company's dollar revenue grew by just 0.5 per cent sequentially to $989 million, in line with street expectations. The dollar revenue growth lagged that of the 1.14 per cent growth posted by the top three information technology services companies.
Weakness in the telecom business offset incremental revenue from the Sofgen and LCC acquisitions, pulling down overall revenue.
“Our results are in line with our expectations as we sense traction across markets and remain hopeful of improving our performance by expanding our business in the coming quarters,” said Vineet Nayyar, executive chairman, Tech Mahindra.
The company's earnings before interest, tax, depreciation and amortisation (EBITDA) margin stood at 14.9 per cent in the quarter and contracted 32 basis points (one basis point is a hundredth of a percentage point) sequentially and 326 basis points over the same quarter of last year.
Margins continue to be at lower band when compared to its larger rivals, owing to investments Tech Mahindra has made to acquire companies.
Higher visa costs added pressure on margins this quarter. The utilisation rate inched up only marginally — up three basis points sequentially and two basis points year-on-year — to 74 per cent and hence could not aid the margin meaningfully.
During the quarter the company added just three clients — a multi-quarter low — to its active client list, taking the total to 770. In the previous March quarter the number of Tech Mahindra’s total clients was 767.
Tech Mahindra headcount was 103,673 at the end of June. It added 392 professionals during the quarter. In contrast to larger rivals that saw attrition levels rise, Tech Mahindra managed to keep this metric stable sequentially at 19 per cent.
The management remains cautious about growth and profitability, given the continued weakness in the telecom as well as organic business.
Recent acquisitions could be margin dilutive in the medium term and the management believes it will take some time to improve the acquired companies’ margins.
On a positive note, the company is growing its digital revenue, which will contribute 10-11 per cent of its 2015-16 consolidated revenue.
