IT cos headed for rough weather

Tech Mahindra sounds alarm bell

Not all seems to be going well with a few information technologies (IT) companies in the country. Close on the heels of profit warnings from a couple of companies last week, Mahindra group-controlled IT consulting and software company Tech Mahindra has said that revenues and margins may decline on a sequential basis in the first quarter.

“The Q1FY16 has some headwinds and tailwinds which could see a risk of marginal decline in both revenue and EBIDTA margin on a sequential basis,” Tech Mahindra informed the exchanges.

Seasonally weak mobility business will be a drag on Q1 revenues and EBIDTA. H1B visa costs will be another drag on margins, the company said, adding that favourable currency movements could help both revenue and margins.

Shares of Tech Mahindra tanked following the profit warning. The scrip however, managed to gain some ground and finally ended with a loss of 7.6 per cent (down Rs 39.65) at Rs 482.15, with volumes of 1.14 crore shares on the National Stock Exchange.

According to Tech Mahindra, the company will continue its investments and cost control measures, the impact of which will only be seen later.

“Investments in digital technologies, R&D and growth factories will continue in an accelerated mode. Organisation wide, there is renewed focus on improving operational levers and cost control parameters, however, the impact is expected to be visible only from Q3FY16 onwards,” Tech Mahindra said.

Pune-based Persistent Systems, had, on June 23, sounded the investors a business update for the first quarter. “Some of the pre-cloud/pre-internet software product companies, who are our customers are reorganising their businesses and changing their priorities.

Consequently. weakness in our current product engineering business coupled with the quarterly variability associated with our IP business, could result in a marginally lower US dollar revenue for this quarter as compared with the previous quarter,” Persistent Systems had informed the exchanges.

Another Pune-based IT company, KPIT Technologies also came out with a similar profit warning on June 25. “Our revenues from business IT solutions (SAP, Oracle, etc), as well as engineering services, have shown a steady state in the quarter. During Q4FY15, we had significant revenues from products and platforms business which included a large chunk of revenues from intelligent transportation solutions (ITS).

This is a seasonal business where we expect to see decline in this quarter as compared with last quarter. As as result of this, we expect a marginaly decline in overall revenues of Q1FY16 sequentially and consequent decline in profits,” the company had said in a notification to the exchanges.