Tech Mah sees weak Q1 rev; other IT firms may be in same boat

Tech Mahindra, India's fifth largest IT services exporter, today warned that a seasonally weak mobility business and visa costs will impact its revenue in the April-June quarter, forcing the firm to resort to cost control measures and improving operational levers.
The firm said it expects the margins to improve only by the third quarter of the current fiscal, 2015-16.
"Q1 FY16 has some headwinds and tailwinds, which could see a risk of marginal decline in both revenue and EBITDA margin on a sequential basis," the Mumbai-headquartered firm said in a regulatory filing.
"Seasonally weak mobility business will be a drag on Q1 (April-June of 2015-16) revenue and EBITDA. H1 B visa costs will be another drag on margins," the firm said.

It added however that favourable currency movements could help both revenue and margins.
A senior official employed with a top IT services firm said on the condition of anonymity that the first quarter is expected to be a weak one for almost all the IT firms.

Tech Mahindra's anticipating an impact on its revenue and margins has been doing rounds in the market for some time and almost all the software services exporters are expected to be hit in April-June, he said.
"Due to macroeconomic headwinds, several clients in the US and Europe have been approaching their IT spending with caution and they are not committing a very large amount in one go. This affects the IT firm's accounting as only the released amount can be put on the balance sheets, though it may be part of a large deal," the official said.

Tech Mahindra is the third company after Persistent Systems and KPIT Technologies to warn about its weak earnings in the first quarter of FY 2015-16.
Tech Mahindra in its business update to investors said that investments in digital technologies, R&D, growth factories will continue in an accelerated way.
Reacting to the development, Tech Mahindra's stock declined by 8.73 per cent to Rs 476.35 per share on the BSE in the afternoon trade.
The firm also warned that "organisation wide there is renewed focus on improving operational levers and cost control parameters, however the impact is expected to be visible only from Q3 FY'16 (October-December) onwards".

The firm did not specify what the operational levers and cost control parameters.
However a market analyst said the company will look at trimming its project costs and will ask its project leaders to go ahead in a way that the earlier intended cost comes down.
On overall expectations for the IT services sector, he said the April-June quarter results are broadly expected to be a "little weak".