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Why Tech Mahindra shareholders lost Rs 7,000 crore

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Mahindra Shares of Tech Mahindra, India’s fifth-largest software services provider plummeted 17 per cent to Rs 357 on Monday as the markets opened after the weekend, wiping off investors’ wealth by nearly Rs 7,000 crore. The fall in shares was on the back of Tech Mahindra’s quarterly earnings shocker. The company’s profit fell 33 per cent year-on-year to Rs 590 crore compared to a Reuters poll that expected the consolidated profit for the period to come in at Rs 783 crore.

Tech Mahindra’s quarterly earnings were released on Friday after the markets had closed. The Mumbai-based Tech Mahindra’s operating margin fell to 12 per cent in the March quarter, from 16.7 per cent in the previous year. The operating margin took a hit due to a $20 million impact from the company’s exit from a networking business contract.

Another $15 million hit was on account of “reprofiling” which were explained as reverses due to renegotiating of contracts by cash-strapped clients. The company hinted the impact reprofiling will continue for two more quarters.
These two factors, coupled with currency volatilities which saw an appreciation in the rupee, dragged the operating profit down.

The Tech Mahindra stock has hit a three and a half year low. The stock has posted the biggest intra day per cent fall since February 2009.

Muted commentary and lack of confidence suggests that a pickup in revenue and margin is likely to be skewed towards the second half of FY18, say analysts.

During the reporting quarter, overall revenues of Tech Mahindra however grew to Rs 7,495 crore, up from Rs 6,883 crore in the previous year.

Tech Mahindra’s chief executive and managing director C P Gurnani said despite the revenue growth, profitability is a concern and the management will be focusing more on it in FY18. Gurnani said the company will be using multiple levers to up the profitability and said that the deal pipeline is better now than what it was in the year-ago period.

Apart from profitability, it will also invest on re-skilling its over 1.17 lakh employees because of the changing industry landscape, he said, declining to give a number on the same. It added a net of 600 employees during the reporting quarter. Amid concerns over massive layoffs in the IT industry, Gurnani said the company shed almost 1,000 employees in its BPO arm. He said it employs 6,000 people in the US, including 2,000 American citizens while the rest are on work visas.

At 10:52 am the Tech Mahindra stock was down nearly 12 per cent at Rs 377. 95 compared to a fairly flat Nifty.

Source: timesofindia

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