Tech Mahindra's stocks fall nearly 17% in early trade after posting 33% decline in Q4 profit

Highlights:

1. Tech Mahindra's stock was trading down 16.7% to Rs 357.60 in the early morning trade on Monday

2. Its consolidated Q4 net profit declined 32.69% to Rs 590 crore for FY17 as compared to Rs 876 crore in the corresponding quarter of previous fiscal 

After reporting 33% decline in its fourth quarter (Q4) consolidated net profit ended on March 31 this year, the stocks of IT software services major Tech Mahindra fell nearly 17% in the early trade on Monday. 

The stock of Tech Mahindra was trading down 16.7% to Rs 357.60 in the early morning trade on Monday as compared to its Friday's close of Rs 429.35 on the BSE.

The consolidated Q4 net profit of Tech Mahindra declined 32.69% to Rs 590 crore for the fiscal year 2016-17 (FY17) as compared to Rs 876 crore in the corresponding quarter of previous fiscal, cited the company in a filing to the BSE on Friday. 

The company had posted a lower-than-expected fourth quarter (Q4) results on account of weak margins and higher cost of services, Reuters reported. 

Analysts on average had expected Tech Mahindra's March-quarter consolidated profit of Rs 783 crore, Thomson Reuters data showed.

According to Reuters report, the company's consolidated margin on earnings before interest, tax, depreciation and amortisation (EBITDA) fell to 12% in the quarter from 16.7% a year earlier.

ALSO READ: Tech Mahindra's net profit declines by 33% in Q4; declares dividend

EBITDA took a $20 million hit which came from the company`s exit of a networking business contract, Milind Kulkarni, chief financial officer of the company said.

An appreciating rupee in the quarter and a $15 million impact from "re-profiling" some of the company`s legacy business also contributed to the fall, Kulkarni added.

The company re-negotiated contracts with some of its clients to provide traditional IT services at cheaper rates while clients assured to spend more on automation and artificial intelligence driven services. The impact of this "re-profiling" on the company`s finances will be visible for the next two to three quarters, Kulkarni said.

Its consolidated total tax expenses surged 28% to Rs 232 crore, while cost of services jumped 14.7%, cited the Reuters report.

The company had posted a near 10% jump in consolidated total revenue, helped by growth in its European business.

"The deal pipeline is stronger in emerging markets and digital transformation," C P Gurnani, chief executive of Tech Mahindra said. 

At 13:39 hours, the stock of Tech Mahindra was trading down 11.47% or Rs 49.25 at Rs 380.10 on the BSE.  

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