Tech Mahindra’s fourth quarter consolidated net profit fell 39.2 percent as salary hikes and adverse cross currency volatility impacted margins.
Quarterly revenues increased around 6 percent to Rs 6116.8 core and dollar revenues too rose around 6 percent to USD 984 million.
The numbers were way below analyst expectations.
In an interview with CNBC-TV18, Sarabjit Kour Nangra of Angel Broking saysmore than the revenue decline, the major disappointment was the decline in margins by 12.4 percent in the last quarter of FY15.
“They have actually come in with revenues of about 2.2 percent below my estimates and margins,” said Ravi Menon, Elara Capital, whose estimate for earnings before interest and tax (EBIT) was 15.8 percent.
They said some kind of extraordinary expense could have led to the fall in margins.
Below is the transcript of Sarabjit Kour Nangra and Ravi Menon’s interview with CNBC-TV18's Sonia Shenoy and Reema Tendulkar.
Sonia: Disappointment as far as margins are concerned, even disappointment as far as dollar revenue growth is concerned. How did you read into the numbers?
Nangra: Very disappointing set of numbers on major front revenue, but major disappointment as you pointed out is from the margins front. They have booked in some Forex loss also which has impacted but major part has been something to do with other expenses. I don’t know what classifications hit them badly. So, these two accounts are major ones even though employee expenses have increased quarter-on-quarter (QoQ). These two are major hits as far as I can see.
Reema: Margins for Tech Mahindra at 12.4 percent that is driving a 41 percent decline in their profitability as well. How are you reading these numbers and would you be downgrading this stock perhaps or at least lowering your EPS estimates? If yes, by how much according to you in your initial assessment?
Menon: That was already one of the lowest on the street at a price target of Rs 600 and my estimates for earnings before interest and tax (EBIT) were 15.8 percent for this quarter.
They have actually come in with revenues of about 2.2 percent below my estimates and margins. Basically, it is significantly below what we thought. So yes, I would like to hear out if there was any one offs in the results or anything that could have cost the margins to decline so much.
I expect there must be some extraordinary item. Otherwise, we can’t really think of why it would be down so much. LPC should have been at much lower margins than we had anticipated.
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