India's Tech Mahindra profit beats estimates on Satyam

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Indian software-services provider Tech Mahindra Ltd reported a three-fold rise in quarterly profit, beating market estimates, after its unit Mahindra Satyam swung to a better-than-expected profit.

Consolidated net profit at Tech Mahindra for the fiscal fourth quarter ended March rose to Rs 3.03 billion ($53.9 million) from Rs 921.9 million a year ago.

Analysts on average expected a net profit of Rs 1.55 billion, according to Thomson Reuters I/B/E/S. Sales met estimates with a 12 per cent rise to Rs 14.2 billion.

Tech Mahindra, whose customers include BT Group PLC and AT&T, is in the process of buying the remaining stake in its Satyam unit.

"Our decision to acquire Satyam was a wise one and it is now giving us rich dividends," chief executive Vineet Nayyar said.

Tech Mahindra, a unit of Mahindra & Mahindra, bought Satyam in a government-backed auction in 2009 after Satyam's founder admitted to one of India's biggest accounting frauds. The full merger is awaiting regulatory approvals.

The combined entity will become the fifth-largest Indian software services provider by revenue. Satyam earlier this month, reported a better-than-expected Rs 5.34 billion profit in the January-March period compared with a year-ago loss of Rs 3.27 billion.

"What would be interesting to watch will be the outcome of the merger and whether it gives the combined company the ability to win much larger contracts," said P. Phani Sekhar, a fund manager at Angel Broking, who overseas funds that include Tech Mahindra and Satyam shares.

India's $100-billion-a-year IT and back-office services industry earns about 70 per cent of its revenues from the United States and Europe, and a fragile global economy has raised concerns that Western clients could curb spending on outsourcing services.

"I am seeing elements of slowdown but I am also optimistic enough to believe that we will record growth," Nayyar said adding the company expects to maintain margins at current levels over the next couple of quarters.

The company was competing for six-seven orders in the telecom sector, each of which could be worth $25 million-$100 million, he said.