India's Tech Mahindra shares slide on biggest profit drop in 16 years

BENGALURU (Reuters) - Shares of Indian IT services company Tech Mahindra dropped to nearly a three-month low on Thursday, a day after the company posted its biggest profit drop in 16 years.

 

The shares fell as much as 3.9%, set for their sixth consecutive session of losses, if trends hold. 

 

The stock was among the top losers in Nifty 50 and the Nifty IT index, which was down 1.4%.

 

Tech Mahindra reported a 61.6% fall in September-quarter net profit, its worst performance since March 2007, hurt by higher expenses and weak client spending.

 

It also disclosed plans to streamline its business through the absorption of three of its units, which it said will result in the reduction of its overheads and help increase operational efficiency. 

 

The company’s margins on earnings before interest and tax contracted to 4.7% from 11.4% last year, which analysts attributed to a one-off expense due to the restructuring of various businesses during the quarter. 

 

The company, however, did not specify any restructuring-related expenses.

 

"We believe the impact of portfolio restructuring and weak demand will weigh on growth and margin in second half of the year and hence, fiscal 2024 as a whole," Nomura analysts said.

 

Tech Mahindra’s new deal wins also fell to $640 million from $716 million a year earlier. 

 

Analysts at Kotak Institutional Equities also cited Tech Mahindra’s restructuring expenses for the sharp revenue and margin miss which worsened due to client-specific issues in the telecom vertical and weak discretionary spending. 

 

They said this could weigh in the December quarter as well as they cut their fiscal 2025-26 revenue estimates by 5%-6%.

 

The IT sector has been grappling with soft demand over the past few quarters amid reduced spending due to a tough macroeconomic environment, leading to the likes of Wipro forecasting a slide in key IT services revenue in the near term.

 

(Reporting by Kashish Tandon in Bengaluru; Editing by Sohini Goswami)