May 26, 2017 / 1:10 PM / 8 months ago

UPDATE 1-India's Tech Mahindra Q4 profit dives 33 pct on weak margins

(Adds details, company executives’ comments)

By Samantha Kareen Nair and Sankalp Phartiyal

BANGALORE/MUMBAI May 26 (Reuters) - Tech Mahindra Ltd , India’s fifth-largest software service provider, posted a lower-than-expected fourth-quarter consolidated profit on Friday, weighed down by weak margins and higher cost of services.

Consolidated profit for the quarter ended March 31, fell 33 percent to 5.90 billion rupees ($91.53 million).

Analysts on average had expected March-quarter consolidated profit of 7.83 billion rupees, Thomson Reuters data showed.

Consolidated margin on earnings before interest, tax, depreciation and amortisation (EBITDA) fell to 12 percent in the quarter from 16.7 percent a year earlier.

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.

Consolidated total tax expenses surged 28 pct to 2.32 billion rupees, while cost of services jumped 14.7 percent.

The company posted a near 10 percent 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.

$1 = 64.4625 Indian rupees Reporting by Samantha Kareen Nair in Bengaluru and Sankalp Pharthiyal in Mumbai; Editing by Sherry Jacob-Phillips and Vyas Mohan

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