Tech Mahindra, a prominent IT firm in India, has reported its steepest drop in profit in over 16 years. This comes as the company grapples with mounting expenses and a challenging macroeconomic landscape.
The broader Indian information technology (IT) industry has been contending with a slowdown in the deal making, primarily due to reduced investments from businesses in the United States and Europe, which account for a significant portion of its revenue, prompted by concerns of an impending economic recession.
This gloomy financial trend is mirrored by other industry leaders, with top IT services providers Tata Consultancy Services (TCS) and Infosys also reporting lower-than-expected revenues. Moreover, Infosys and HCLTech recently revised their annual revenue forecasts downward, highlighting the industry’s ongoing challenges.
Tech Mahindra’s financial woes are evident in its quarterly financial results, which reveal a staggering 61.6 percent decline in net profit — the company’s worst performance since March 2007. Consolidated revenue from operations dipped by 2.02 percent year-on-year, while expenses surged by nearly 7 percent, primarily attributed to a 30 percent increase in other expenses.
Piyush Pandey, a lead analyst at Yes Securities, commented on the situation, stating that the near-term demand environment remains challenging, especially for Tech Mahindra, which relies heavily on the stressed telecom sector. He anticipates that any potential revenue growth recovery is more likely to occur in the next financial year.
The company’s new deal wins also experienced a decline, falling to $640 million from $716 million in the previous year. Furthermore, Tech Mahindra’s earnings before interest and tax (EBIT) margin contracted significantly, dropping from 11.4 percent a year ago to 4.7 percent. Analysts attributed this decline to one-off expenses associated with the restructuring of various business operations during the quarter.
Tech Mahindra is taking steps to address its financial challenges by approving the absorption of three units, which the company anticipates will result in a reduction of its overhead costs. Despite these hurdles, the company remains optimistic about its future prospects and aims to navigate through the current economic turbulence with strategic initiatives and prudent management.