Investors were disappointed after India's fifth-biggest software services provider Tech Mahindra's profit fell 33 per cent annually to Rs 590 crore in the January- March quarter, weighed down by weak margins and higher cost of services. Analysts polled by Reuters had expected Tech Mahindra to post consolidated profit of Rs. 783 crore. Tech Mahindra had reported its quarterly numbers after-market hours on Friday.
Mumbai-based Tech Mahindra's operating margin fell to 12 per cent in the March quarter, from 16.7 per cent a year earlier, following a $20 million hit from the company's exit from a networking business contract, Milind Kulkarni, chief financial officer of the company, said. An appreciating rupee and a $15 million impact from "re-profiling" some of the company's legacy business also contributed to the fall, Mr Kulkarni added. Consolidated tax expenses also surged 28 per cent to Rs. 232 crore, while cost of services jumped 14.7 per cent.
Domestic brokerage Nirmal Bang has retained its "sell" rating on Tech Mahindra for a target of Rs. 403. The cut in Tech Mahindra's target price is due to "structural weaknesses because of its less diversified revenue mix, higher client concentration, lower margins and lower trending RoIC (return on capital employed)," the brokerage said.
As of 10:07 am, shares of Tech Mahindra traded 1.5 per cent higher at Rs 385, outperforming the Nifty which was up 0.19 per cent.