IT solutions company Tech Mahindra has reported an 8.1 per cent dip in consolidated net profit for the quarter ended June 30, 2014 on account of the rupee appreciation, visa expenditure and transition costs related to a large project. Net profit of the Pune-headquartered company was down to ₹630.7 crore as against ₹686.3 crore in the corresponding year ago quarter. Tech Mahindra’s operating margin declined by 306 basis points on a sequential basis.

One-time cost impact

In Q1, IT companies file for H1B work visas in the US. This resulted in a one-time cost impact of $9 million for the Mahindra group company, Vice-Chairman Vineet Nayyar said at a press briefing on Thursday. The three per cent rise of the Indian rupee against the US dollar in the April-June quarter had a negative impact of 50 basis points on the company’s margins, he added.

The company generates almost half of its revenue from software exports to the US. In addition, it is in the midst of transitioning for a large network services engagement.

As a result, it has had to pay salaries for both its employees and those of the incumbent vendor.

Therefore, it recorded transitioning costs of up to $7 million this quarter, said Nayyar.

In a research note, Ankita Somani, sector analyst at MSFL Research said: “The revamped sales team, post consolidation of Satyam and increased focus on sales efforts, has started yielding results for the company with improving volume growth, but dismal operating margin performance during the quarter will impact the earnings estimates for fiscal 2015.”

Optimistic picture

Tech Mahindra has painted an optimistic picture for the remainder of the year.

“The US has surprised us with the pace of economic growth. While this is good for the IT industry, it will be some time before the benefits start showing,” Nayyar said.

Chief Executive Officer CP Gurnani said that the company’s revenue from the Americas and Europe grew by 8 per cent and 5 per cent, respectively, on a sequential basis.

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