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Tech Mahindra hits 43-month low; tanks 17% on weak Q4 results

SI Reporter / Mumbai 29 May 17 | 09:49 AM

Tech Mahindra  tanked nearly 17% to Rs 358, also its 43-month on BSE in early morning trade, after the company reported a bad set of numbers for the quarter ended March 2017 (Q4FY17). The stock is trading at its lowest level since October 2013.

IT services major Tech Mahindra said fourth quarter profits declined by 30% sequentially to Rs 588 crore as it saw project cancellations in its communication business amidst restructuring of Lightbridge Communications Corporation (LCC), a US firm it acquired in 2015. Revenues during the reporting quarter were down 1% to Rs 7,495 crore over the previous quarter.

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Analysts on an average had expected profit of Rs 772 crore on revenues of Rs 7,532 crore.

Ebitda (earnings before interest, tax, depreciation and amortization) margin declined to 12% in March quarter from 15.7% in December quarter.

“EBITDA margin sprung negative surprise with 370bps QoQ fall to 12.0% versus 20bps decline estimate. Management attributed the steep margin decline to restructuring of few contracts in LCC business (180bps), Re-alignment in few deals in legacy business (140bps) and currency appreciation (40bps)," Antique Stock Broking said in its result review.

The margin drop was heightened due to the deferral of license sales in the Comviva business (mid-teen margins). Company expects margin to recover from current level based on following levers LCC restructuring costs being one time and no further impact from the restructuring exercise, legacy business realignment cost to be recovered in next 2-3 quarters and operational levers such as utilization, pyramid rationalization and higher automation. Company anticipates margin improvement from Q2FY18 onwards, it added.

“We maintain Add as we believe stable revenue growth trajectory boosted by strong deal wins (USD 1.5 billion in TTM) and consequent improvement in margins would lead to 11% EPS Cagr over FY17-20ii. However, the stock may continue to remain weak in the near term as the street factors in network services (NSM) weakness," IIFL Institutional Equities said in company update.

At 09:46 am; the stock was trading 12% lower at Rs 378 on BSE, as compared to 0.29% rise in the S&P BSE Sensex. The trading volumes on the counter more than doubled with a combined 7.69 million shares changed hands on BSE and NSE so far.

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