Tech Mahindra goes from bad to worse in the June quarter

Tech Mahindra Ltd’s shares had underperformed the market after its revenue growth fell sharply in the March quarter. Profit margins narrowed at a higher-than-expected pace as well, raising concerns about its earnings. The June quarter results, released after market hours on Tuesday, provide no major reason to alter the stock’s trajectory

Dollar revenues grew just 1.9% year-on-year and fell 1.6% compared to the March quarter. “In the current quarter, the company faces seasonality, however, even after factoring the seasonality, Tech Mahindra’s revenues were below our expectation," ICICI Direct Research said in a note. 

Worse still, the fall in profitability was far higher than Street expectations. Ebit (earnings before interest and tax) margins contracted 1.5 percentage points from a year ago. 

As a consequence, operating earnings (Ebit) in dollar terms dropped 9% from a year ago. Sequentially, they are down as much as 26%. “Margins are way below estimates leaving room for earnings-per-share cuts," an analyst said in a note to his clients. 

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