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Tech Mahindra Q4 net drops 3.6% on wage hikes

Thursday, 15 May 2014 - 7:00am IST | Place: Mumbai | Agency: dna

Tech Mahindra, India's fifth-largest IT services company, reported a 3.6% fall in net profit in the fourth quarter ended March 31 at Rs 614.2 crore as against Rs 637.7 crore posted in the third quarter.

Operating profit declined 5.7% quarter on quarter to Rs 1,071.8 crore, as compared with Rs 1,136.3 crore in the last quarter. However, on-year, Ebitda jumped 39%.

For the full fiscal 2014, the net profit was up 54.9% at Rs 3,029 crore against Rs 1,955 crore in fiscal 2013.

Milind Kulkarni, CFO, Tech Mahindra, said, "There was a 190 basis points hit to margins in Q4 on account of wage hikes in the last quarter, as well as a 50 basis points hit to margins on account of amortisation. Amortisation costs, which would have a Rs 10 crore impact overall on Tech Mahindra's books during the year, should be cleared in the ongoing quarter. Besides, forex losses in the quarter totalled $101 million."

A harsh winter in the key US market and continuing decline of key client BT was also responsible for hit to net profit.

In terms of consolidated revenues, however, Tech Mahindra reported a 34.2% growth at Rs 5,058.1 crore, as against Rs 3,767.3 crore in the corresponding quarter last fiscal, and qoq growth of 3.3% at Rs 5,058 crore. In dollar terms, the company's qoq revenue growth was up 4.3% at $825 million, and 18.2% at $3.09 billion for the full year. Net profit was up 12.2% in the quarter to $101 million.

Vineet Nayyar, executive vice chairman, Tech Mahindra, said, "The US economy has been rebounding and looking healthy after a harsh winter that slowed growth. As predicted, the US saw faster revenue growth in the second half of fiscal 2014. Besides this, telecom and manufacturing also led growth at 22% and 18%, respectively, and we signed one large manufacturing deal in the quarter. Going forward, while Eurozone growth may be impacted somewhat by US-Ukraine tension, the growth potential in Europe is still good, being led by Germany."

During the quarter, while US revenues were flat, Europe grew 4.3%, while rest of the world grew 13.8%.

C P Gurnani, managing director and CEO, Tech Mahindra, said, "While telecom has contributed to $1.5 million and enterprise to $6 million during the year, this year marked a beginning of large deal wins for Tech Mahindra with four large wins in BFSI and two in manufacturing."

This brings the total contract value to $270 million in the quarter, with 11 deal wins in the quarter and a 30% stronger pipeline on-year. Active client count stood at 629 versus 516 in fiscal 2013.

"However, we will be selective about deals in the IMS vertical, as we are not aggressive in the rebid market," Gurnani said.

Digital enterprises of the future, led by network services division is one of the fastest growing business for the company, with 4-5 deal wins in this area in the fourth quarter from the US, Australia, New Zealand and the UK, he said.

"We are likely to close our recent German acquisition of BASF Business Services Holdings in the next 2-3 months, and we are continuing to work towards our target of achieving revenues of $5 billion by 2015. For this, we will continue to invest heavily in technology, people and processes."

Given the drop in debt to Rs 363 crore as of March 31, after repaying Rs 796 crore in fiscal 2014, Tech Mahindra has proposed a dividend of Rs 20 per share (200%) for 2013-14.

During the year Tech Mahindra added 6,333 professionals, taking the total headcount to 89,441. Software headcount stood at 60,997, while for BPO, it was 21,830 and support 6,614 people. Attrition in the quarter was steady at 16%, while gross utilisation stood at 77%.

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