India’s Tech Mahindra posts biggest profit fall in 16 years

By Manvi Pant

BENGALURU (Reuters) -India’s Tech Mahindra on Wednesday posted its biggest fall in profit in over 16 years as expenses mounted and clients tightened spending amid a tough macroeconomic environment.

India’s information technology (IT) industry has been grappling with delays in dealmaking, as businesses in the U.S. and Europe, from where it draws the bulk of revenue, cut back investments amid fears of a recession.

Top IT services providers Tata Consultancy Services and Infosys reported lower-than-expected revenue, with Infosys along with HCLTech cutting annual revenue forecasts earlier this month.

Tech Mahindra’s net profit for the quarter fell 61.6%, its worst performance since March 2007.

Consolidated revenue from operations fell 2.02% year-on-year, while expenses rose nearly 7%, led by a 30% jump in “other expenses.”

“Near-term demand environment remains challenging as the telecom sector, on which Tech Mahindra has a high dependence remains stressed,” said Piyush Pandey lead analyst, Yes Securities.

Any recovery in revenue growth will likely happen in the next financial year, he added.

Tech Mahindra’s new deal wins fell to $640 million from $716 million a year ago.

The company’s earnings before interest and tax (EBIT) margin contracted to 4.7% from 11.4% a year ago.

Analysts cited one-off expenses due to restructuring of various business operations in the quarter for a fall in EBIT margin.

The company also approved absorption of three units, which it said will result in reduction of its overheads, along with announcing a dividend of 12 rupees per share.

Shares of Tech Mahindra closed 1.2% lower ahead of results, with trade volume just shy of three-quarters of the 30-day average.

($1 = 83.1360 Indian rupees)

(Reporting by Manvi Pant in Bengaluru; Editing by Varun H K)