Tech Mahindra's earnings fall short of expectations due to struggle in telecom sector
Hyderabad: Tech Mahindra Faces Revenue Woes in Q4 due to Economic Uncertainty and Sector Challenges
tech-mahindra's fourth-quarter revenues stumbled, falling short of analyst estimates. The web of economic uncertainty has cast a dark shadow over the expenses of tech-mahindra's clients, particularly within the telecom sector.
The telecom vertical, accounting for a third of tech-mahindra's entire revenue, has been reeling for multiple quarters. This stretch of hardship can be traced back to persistently high inflation in numerous countries, leading clients to axe spending and tighten their budgets. As a result, revenue from the segment slumped by 2.2% year-on-year.
The unpredictable tariff policies of U.S. President Donald Trump have fanned the flames of anxiety regarding India's IT sector. Some of the sector's heaviest hitters have raised red flags over technology spending decisions being delayed by clients.
"The global economic conditions remain a thorn in our side," chief executive Mohit Joshi said, echoing the sentiments of many in the industry. He added that the company was experiencing fluctuations in some of its larger sectors, focusing on the manufacturing sector in particular.
The ray of hope for tech-mahindra was the growth that had stalled within its telecom vertical but had started to show signs of stability returning in Europe and Asia Pacific regions.
Tech Mahindra's consolidated revenue ascended by 4% year-on-year, reaching 133.84 billion rupees ($1.57 billion), at the end of the quarter on March 31. However, this figure still missed the projected mark of 134.52 billion rupees.
The IT services firm, which has been playing catch-up under Joshi's leadership, saw revenue tumbling in the manufacturing and hi-tech sectors while other segments, like banking and finance, exhibited growth.
"Although we sit in a precarious position currently, compared to last year, I believe we've made considerable progress," Joshi said.
Tech Mahindra's profit jumping 76.5% to 11.67 billion rupees was chiefly due to the reversed subcontracting expenses and a deferred tax gain. Its order bookings swelled to $798 million from $500 million, a year earlier.
"Securing higher-margin deals in the future will be crucial for our growth trajectory. However, the increased exposure to the telecom vertical could breed skepticism. On the other hand, the growing exposure to the banking and finance sector bodes well for our future prospects," Sushovon Nayak, an IT analyst at Anand Rathi, concluded.
Enrichment Data:1. Telecom Sector Challenges: The telecom sector has faced headwinds due to shifts in technology and market competition, resulting in reduced revenue for Tech Mahindra.2. Hi-Tech Vertical Weakness: Apart from telecom, the hi-tech vertical has faced difficulties due to broader market conditions and competitive pressures.3. Constant Currency Revenue Decline: In constant currency terms, Tech Mahindra reported a revenue decline steeper than anticipated.4. Low-Margin Deal Closures: Closings of low-margin deals have impacted revenue, even though they were profitable in terms of volume and yielded lower overall revenue growth.
- The telecom sector challenges in Hyderabad have led to Tech Mahindra's revenues from this vertical slumping by 2.2% year-on-year.
- Apart from the telecom sector, the hi-tech vertical in Tech Mahindra has also faced difficulties due to broader market conditions and competitive pressures.
- Despite the higher-volume, lower-margin deals that Tech Mahindra closed, the constant currency revenue decline was steeper than anticipated.
- The increased exposure to the telecom vertical raises skepticism, but the growing exposure to the banking and finance sector could bode well for Tech Mahindra's future prospects, as suggested by Sushovon Nayak, an IT analyst at Anand Rathi.
