India's Tech Mahindra misses Q3 profit view on muted spending in key verticals

Credit: REUTERS/ADNAN ABIDI

Updates with details

BENGALURU, Jan 24 (Reuters) - India's Tech Mahindra TEML.NS posted a 60.6% drop in third-quarter net profit on Wednesday, missing estimates as clients continued to hold back spending in communications and banking verticals. The fifth-largest Indian IT services company's net profit fell to 5.10 billion rupees ($61.36 million) for the three months ended Dec. 31, 2023, from 12.97 billion rupees a year earlier.

Analysts, on average, expected a profit of 6.17 billion rupees, according to LSEG data.

In the first quarter after Mohit Joshi took over as the new chief executive officer, the company reported a revenue of 131.01 billion rupees, compared with analysts' estimates of 128 billion rupees.

Operating margins fell 660 bps to 5.4% from the same period last year, while new deal wins more than halved to $381 million from $795 million.

The Pune-headquartered company has been lagging peers in terms of growth with profit hitting a 16-year low in the last quarter, while operating margin was at a historic low of 4.7%.

India's $245-billion IT industry has been hurting due to an uncertain demand environment as clients cut back on discretionary spending amid inflationary pressures and recession fears.

Tech Mahindra's growth was hit due to a weakness in the communications, media and entertainment vertical, its largest in terms of revenue. It fell 13.4% on year.

The company has been trying to exit non-core, low-margin businesses to improve profitability for the past few quarters.

Joshi said the outcome was "mixed" for the quarter, with growth in the manufacturing and healthcare segments, but spending remaining in areas like communications, BFSI and hi-tech.

The quarter saw Tech Mahindra's peers reporting mixed numbers, but commentary from the companies largely indicated that the demand environment has not worsened sequentially, as was feared.

Mumbai-listed shares of the company closed 3.02% higher ahead of the results.

($1 = 83.1120 Indian rupees)

(Reporting by Haripriya Suresh; Editing by Sohini Goswami)

((Haripriya.Suresh@thomsonreuters.com;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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