Tech M Q2 net slides 4 pc as profitability comes under pressure on staff costs

Tech Mahindra on Tuesday reported a 4 per cent decline in profit for the September quarter at Rs 1,285 crore, citing a compression in profit margin.

The country's fifth largest IT services exporter's total revenues rose 20.7 per cent to Rs 13,129 crore for the reporting quarter as against the same period year-ago, and were 3.2 per cent higher than the preceding June quarter.

The operating profit margin compressed to 15.1 per cent as against 18.3 per cent in the year-ago period, denting the bottom line and resulting in the dip in profits.

Its managing director and chief executive C P Gurnani told reporters that its large deal pipeline is the best he has seen in the last five years, despite the macroeconomic headwinds.

The Mahindra group company reported a total contract value -- the value of new deal wins -- at USD 716 million for the reporting quarter, and the management expressed satisfaction at the number saying it is within the target band of USD 700 million-USD 1 billion.

Its chief financial officer Rohit Anand said a major hit on the profitability was because of cost inflation on the human resources front, wherein companies in the IT sector have been forced to hire at higher payouts or pay retention bonuses to retain experienced staff.

He said amortisation costs, because of a spate of acquisitions it did in the past, and investments in large deals also hit the margins. The company is looking at upping utilisation, increasing the mix of offshoring to low-cost geographies and a slew of business initiatives like increasing the share of business from US and Europe to increase the number, he added.

Gurnani said the supply side challenges continued in the reporting quarter, and expects manpower related issues to continue for up to a year.

He called out Europe as a story of caution because of the geopolitical issues, high inflation, problems over energy supplies and how they will be coping with the upcoming winter months, but added that the demand in the US remains strong.

Its president for corporate development Vivek Agarwal said it has upped its efforts on tapping large deals with separate teams to hunt for such deals which is resulting in a higher number. He also said that the company was able to increase its pricing by 0.5 per cent during the quarter.

On the human resources front, it added over 5,000 on a net basis to take its overall employee base to over 1.63 lakh people. Agarwal said the company gave out average hikes of 6-10 per cent to its employees during the quarter, which resulted in a 1 per cent impact on the operating profit margins.

The attrition came down to 19.6 per cent for the quarter from 21 per cent in the preceding quarter, and remained at the upper edges of the budgeted levels, Gurnani said, adding that it is on a downward slide.

When asked about its target to hire 10,000 freshers in FY23 and progress in the first half, Gurnani responded without sharing a number and said that all the IT players are working to gauge responses from the business side before they hire. He, however, made it clear that the company is not delaying joinings after making an offer.

The Tech Mahindra scrip closed 0.77 per cent up at Rs 1,071.65 a piece on the BSE, as against gains of 0.62 per cent on the benchmark.