TechM profit up 6.6% in Q1 but concerns remain

Varun Aggarwal Mumbai | Updated on January 11, 2018

Driven not by improvement in core business but primarily by forex gains, sale of property

Software firm Tech Mahindra on Monday reported 6.6 per cent jump in consolidated profit after tax in the quarter ended June 30 at ₹799 crore from ₹749 crore last year.

The profit, however, was driven not by improvement in core business but primarily by forex gains and sale of a property.

Revenues were up 6 per cent year-on-year to ₹7,336 crore in the quarter, primarily driven by a $17-million gain from the acquisition of HCI in the US, which closed in the first week of May.

A ‘mixed bag’

Headwinds continue to remain in the company’s major markets the US and the UK.

“Economy is a mixed bag. With a new President in the White House, there is a state of influx. There are so many problems in the US that we may escape wrath, at least for a while. I’m optimistic about Europe; the US is still a question mark. Other than that, macro economic conditions look good,” said Vineet Nayyar, Vice-Chairman, Tech Mahindra.

Nayyar said that currency headwinds, H-1B visa costs and seasonal weakness in the company’s Comviva business unit impacted margins.

“I am definitely not happy, but it is a good beginning as our enterprise business has grown,” CP Gurnani, MD and CEO at Tech Mahindra, told BusinessLine on the sidelines of the earnings announcement.

“It’s a good start. Clearly, from the previous quarter, despite of all the expenditures on H-1B and forex headwinds, we were able to improve our EBITDA margin by 70 basis points. We also made an effort on right sizing, which saw our headcount decreasing by 1,500 people, despite adding 2,000 BPO employees and 700 HCI employees,” he added

Tech Mahindra headcount has reduced to 1,09,328 employees as the company tries to reduce its operational costs and focus towards profitable growth.

“This year, we deferred wage hikes and gave hikes only from July 1, for people with 0-6 years of experience. The rest of the employees will get wage hikes on select basis, which will include 3,000-4,000 people. This hike will be effective January 1, 2018,” Gurnani said.

This means, as much as 70 per cent of the company headcount will not get any wage hike this year since only 30 per cent of TechM employees fall under the 0-6 years experience bracket.

Job cuts

Talking about the job cuts, Gurnani said most of the job cuts were being made in the firm’s telecom unit, where it is trying to get out of the ‘blue-collar’ engineering jobs.

The current utilisation rate of the company stands at 77 per cent, which it said might go up after recent job cuts.

Tech Mahindra added 21 active clients in the quarter, taking the active client count to 864 from the previous sequential quarter. Cash and cash equivalents stood at ₹6,016 crore as of June 30.

Published on July 31, 2017

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