Tech Mahindra sees weak revenue, earnings in Apr-Jun quarter

Says seasonally weak mobility business will be a drag on Q1 revenues and EBITDA

Tech Mahindra, India’s fifth largest information technology (IT) services exporter, on Monday warned a seasonally weak mobility business and visa costs would impact its revenue in the April-June quarter, forcing cost control measures and improving of operational levers.

The firm said it expected the margins to improve only by the third quarter of the current financial year. “Q1 FY16 has some headwinds and tailwinds, which could see a risk of marginal decline in both revenue and earnings before interest, taxes, depreciation, and amortisation (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, 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 was expected to be a weak one for almost all the IT firms.

Tech Mahindra’s anticipating an impact on its revenue and margins had 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 2015-16.

Tech Mahindra, in its business update to investors, said investments in digital technologies and research and development will continue in an accelerated way. Reacting to the development, its stock dipped 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".
RED FLAG

• A seasonally weak mobility business and visa costs will impact revenue in the Apr-Jun quarter, warns Tech Mahindra
• Says it expects the margins to improve only by the third quarter
• Third firm after Persistent Systems and KPIT Technologies to warn about weak earnings in the first quarter