Why did the profits of Tech Mahindra fall sharply on a qoq basis?

Tough times for IT stocks continued in the June quarter as Tech Mahindra reported -24.8% sequential fall in net profits at Rs1,132 crore in Q1FY23. There was intense margin pressure that was visible in the quarter largely on account of wage hikes and a sharp increase in travel and visa costs. Manpower costs were the big reason for the fall in margins.

Unlike the other large IT companies, Tech Mahindra witnessed a 200 bps fall in the rate of attrition from around 24% to 22%, which his a positive, albeit rather high in absolute terms. Revenues for the Q1FY23 quarter were up 4.9% at Rs12,708, with billings hardly impacted by the pressures on the IT stocks in the quarter. However, the management of Tech Mahindra admitted that Q1 tends to be a seasonally weak quarter. The Communication, Media and Entertainment (CME) vertical gave 40.4% of revenues and grew at 19.1% yoy.