Tech Mahindra reports disappointing Q1 results, with a 38% decrease in net profit to Rs. 692.5 billion

Due to a steep decline in profit margins, Tech Mahindra, the fifth-largest IT services provider in the nation, reported a 38 percent decline in net profit for the June quarter to Rs 692.5 crore on Wednesday.

In the same April through June period the previous year, the Mahindra group firm had generated a net profit of Rs 1,131.6 crore. The same was Rs 1,117.6 crore in the quarter before.

Revenues decreased to Rs 13,159 crore in the reporting quarter from Rs 13,718 crore in the March quarter before, and year-over-year growth was just 3.5%.

C P Gurnani, who is leaving his position as the company’s chief executive officer and managing director, described the quarter as one of the most challenging he has experienced in the previous five years and blamed the company’s core business of communications, media, and entertainment (CME) for the overall decline in numbers.

With an operational profit of 6.8% compared to 11% in the same quarter last year and 11.2% in the same quarter this quarter, Tech Mahindra had one of the lowest operating profits in the IT services sector.

According to its chief financial officer Rohit Anand, the decrease in service revenue, which reduced margins by 2 percentage points, provisions made as a result of a client filing for bankruptcy, which also reduced margins by 2 percentage points, and seasonal reversals at Comviva, a subsidiary that provides telecom clients, were to blame.

According to Gurnani, who spoke to reporters, the CME sector customers, who account for 42% of Tech Mahindra’s income, suddenly reached a snag during the quarter. He said that his expenses and planning were not prepared for this possibility.

Revenue-wise, the CME sector recorded a drop of 8.2% compared to the same time a year earlier and a drop of 9.4% compared to the previous quarter.

The banking, financial services, insurance, retail, transportation, and logistics industries all saw a decline in sales, according to a statement from the business.

Gurnani cited a halt in initiatives involving two to three startups as an example of how the firm has been hurt by the fundraising winter.

He said that the firm had the appropriate building blocks and expressed confidence that it would do better in the future.

Gurnani predicted that the next quarter would be better for the business, but he did not elaborate on his optimism.

However, the company’s overall contract value maintained its recent downward trend, and the number of new deals it won dropped significantly during the quarter.

In the most recent quarter ending in June, net new transaction wins were USD 359 million as opposed to USD 802 million and USD 592 million in the same periods the year before.

Gurnani said that the success of deals is a mixed bag, with lengthier signing times despite an increase in customer dialogues about potential contracts.

He said that, in the past, certain closures would occur in a quarter whereas today, it would take more than two.

Business setbacks had an effect on personnel as well; at Tech Mahindra, the total employee base fell by more than 6% from the same time last year to 1.48 lakh employees.

However, the attrition rate decreased from 23% in the year-ago period and 15% in the quarter-ago period to 13% this time around.

Mohit Joshi, CEO and MD-designate of Tech Mahindra, joined the company from larger competitor Infosys and expressed his excitement for the breadth of customer engagements and the cutting-edge service offerings.

Joshi said that Tech Mahindra’s June quarter results were difficult, but he expressed confidence in the company’s medium- to long-term prospects.

In contrast to Wednesday’s increase of 0.53 percent on the benchmark, the company’s shares ended the day 0.84 percent down at Rs 1,144.5 a share on the BSE ahead of the results announcement.