Rising cost, lower revenue keep TechM Q2 net flat

Our Bureau Mumbai | Updated on November 25, 2017 Published on October 29, 2014



Next two quarters could be ‘challenging’ for the company, says Vineet Nayyar

Tech Mahindra has reported a flat change net profit, at ₹719.7 crore, for the second quarter ended September 30, compared with ₹718.4 crore in the year-ago period, on account of lower revenue and higher costs.

Revenue rose 15 per cent to ₹5,488 crore (₹4,771 crore).

“In Q2 of last year, we had revenue coming in from amortisation of a BT contract, which is not there this quarter. Moreover, we have been increasing onsite revenue for the last four quarters and hence overall profitability has gone down,” said Milind Kulkarni, Chief Financial Officer.

It may be recalled that in 2010, Tech Mahindra had received £126 million (₹938.7 crore) from BT, one of its largest customers, for restructuring a long-term contract that both had entered into in December 2006.

Instead of accounting the amount in a single quarter, Tech Mahindra had recognised the revenue in parts, spread evenly across every three-month period, ending with the September quarter of 2013.

During the quarter, the company’s overall costs increased by 25.5 per cent to ₹3,616 crore (₹2,882.6 crore).

On a quarter-on-quarter basis, the company exceeded analyst expectations to report a 14.1 per cent rise in net profit from ₹630 crore.

“Growth in Q2 was driven by the communications and manufacturing sectors, which accentuates the capabilities that we have built in these verticals,” said Vineet Nayyar, Tech Mahindra’s Executive Vice-Chairman.

However, he cautioned that the next two quarters could be ‘challenging’, on account of factors such as deflation in the Eurozone, the slowdown in China, political uncertainty in Russia and flutters regarding the Ebola virus.

Most of Tech Mahindra’s major verticals recorded robust growth during the quarter. Retail, manufacturing and communications grew by 4.6 per cent, 4.7 per cent and 8 per cent, respectively, said CP Gurnani, Chief Executive Officer and Managing Director.

The company’s margins improved by 180 basis points 19.9 per cent on a sequential basis on account of the rupee’s depreciation, absence of visa-related costs and improved efficiency.

On Wednesday, shares of Tech Mahindra rose 1.16 per cent to close at ₹2,396.5 on the Bombay Stock Exchange.

Published on October 29, 2014
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