Shares of Tech Mahindra plunged nearly 7 percent Monday after the IT firm warned about its April-June quarter earnings that are expected to be announced in July. The company said Q1FY16 has some headwinds and tailwinds which could see a risk of marginal decline in both revenue and EBITDA margin a sequential basis.
“Seasonally weak mobility business will be a drag on Q1 revenues and EBITDA. H1 B visa costs will be another drag on margins,” it explained. It also said FY16 organic communication growth could remain subdued due to delayed decision making.
After Persistent Systems and KPIT Technologies , Tech Mahindra is the third company to warn about its weak earnings in the first quarter of FY16.
However, it feels, favourable currency movements could help both revenue and margins. It said the deal pipeline remains healthy and investments in digital technologies, research & development, growth factories will continue in an accelerated mode.
It added that organisation wise, there is renewed focus on improving operational levers and cost control parameters, however the impact is expected to be visible only from Q3FY16 onwards.
However, Sarabjit Kour Nangra, VP Research – IT at Angel Broking has maintained its buy rating on the stock with a price target of Rs 646.
Nangra has also maintained numbers and target for FY2017, though FY2016 could be tweaked. “Also after factoring in marginal improvement in the margins in FY2017, the stock is attractively valued. We have reduced the FY2016 sales and net profit numbers by 5 percent and 6 percent respectively,” he said.
Tech Mahindra also disappointed in the quarter ended March 2015 . It had missed street forecast with the fourth quarter consolidated profit falling 39.2 percent sequentially to Rs 472 crore, dented by lower margin and higher forex loss. “Q4 results were impacted by macroeconomic factors like cross currency headwinds and salary increases,” said Vineet Nayyar, Executive Vice Chairman, Tech Mahindra on May 27.
Rupee revenue grew by 6.3 percent to Rs 6,116.8 crore during January-March quarter compared to Rs 5,751.7 crore in December quarter while dollar revenue climbed 6.5 percent Q-o-Q to USD 984.1 million (which was also below estimates of USD 996 million).