Tech Mahindra April-June Profit Jumps 22% on Satyam Gains
08/09/2012| 09:26am US/Eastern
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-- Net profit 3.39 billion rupees vs 2.77 billion rupees year earlier
-- Profit includes 1.50 billion rupees of income from Satyam
-- Ebitda margin expand 440 basis points from previous quarter to 21.4%
-- Executive says clients delaying technology investments
(Recasts; adds comments of executive in 3rd, 4th and 12th paragraphs; background.)
By Dhanya Ann Thoppil
MUMBAI--Tech Mahindra Ltd. (532755.BY) Thursday reported a more than 22% rise in its quarterly profit as a surge in income from associate Satyam Computer Services Ltd. (500376.BY) bailed out the Indian outsourcing company from troubles in its telecommunications-related business.
Tech Mahindra, which makes software and billing systems mostly for the telecommunications industry, is struggling to recover from a slowdown in the telecom sector, as clients tighten investments in an uncertain global economic environment.
"Customers are scrutinising all aspects of expenditure, including IT spending, and are looking at avenues to minimize financial commitments," Vice Chairman Vineet Nayyar told reporters. He said clients continue to delay decisions on technology investments.
Mr. Nayyar echoed the concerns raised by larger competitors Infosys Ltd. and Wipro Ltd., which last month cautioned of a demand slowdown due to the economic uncertainties in the U.S. and Europe, the industry's largest markets.
However, the company's proposed merger with associate Satyam Computer, due sometime by the end of this year, is expected to alleviate the growth concerns as business at Satyam remains robust. Tech Mahindra bought a controlling stake in Satyam in April 2009 after the Hyderabad-based company plunged into a turmoil when its then chairman confessed to cooking its books.
Satyam has since recovered from the scandal.
Tech Mahindra's consolidated net profit for the April-June period rose to 3.39 billion rupees ($62 million) from 2.77 billion rupees a year earlier. This includes 1.50 billion rupees of profits from Satyam, compared with 960 million rupees a year earlier.
Satyam reported a net profit of 3.52 billion rupees in the first quarter.
Consolidated revenue at Tech Mahindra grew 19% to 15.43 billion rupees. Its sales in U.S. dollars remained flat at $281.3 million.
The share of BT Group PLC (>> BT Group plc)--the Indian company's largest client--in its total sales remained flat in the past quarter. BT and Indian auto maker Mahindra & Mahindra Ltd. (500520.BY) are the parents of Tech Mahindra.
Tech Mahindra's business from BT had been falling over the past several quarters, especially after the British telecom major decided to seek fresh bids on a large portion of the projects being executed by the Indian company.
Mr. Nayyar said BT is reducing its investments in technology due to "internal financial pressures." This has affected Tech Mahindra's share of revenue from BT, he said, without elaborating.
Earnings margin before interest taxes, depreciation and amortization expanded 440 basis points from the previous three months to 21.4%, the company said, as it benefited from an average 8% fall in the value of the Indian rupee against the U.S. dollar in the past quarter.
Write to Dhanya Ann Thoppil at dhanya.thoppil@dowjones.com
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