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Business News/ Companies / Company Results/  Tech Mahindra Q1 Results preview: Expect a weak set of numbers; here are the key factors to watch out
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Tech Mahindra Q1 Results preview: Expect a weak set of numbers; here are the key factors to watch out

Tech Mahindra is expected to report weak Q2 results, with revenue growth likely to be soft and profit after tax potentially dipping YoY due to weakness in its CME vertical. Some brokerage firms predict a decline in constant currency revenue on a QoQ basis.

Tech Mahindra may report a subdued set of Q1FY24 results. Dhiraj Singh/Bloomberg (Bloomberg)Premium
Tech Mahindra may report a subdued set of Q1FY24 results. Dhiraj Singh/Bloomberg (Bloomberg)

Tech Mahindra is likely to report a subdued set of June quarter results on Wednesday (July 26) mostly because of weakness in its CME (communications, media and entertainment) vertical. The IT firm's revenue may see soft growth but profit after tax (PAT) may dip on a year-on-year (YoY) basis. Some brokerage firms expect Tech Mahindra's constant currency (CC) revenue to decline in quarter-on-quarter (QoQ) terms.

While the numbers will show how the company performed in the last quarter, investors would focus on the near-term growth outlook, deal pipelines and outlook on its business segments.

Brokerage firm Phillip Capital expects Tech Mahindra's revenue to rise 6.3 per cent YoY, but PAT may see a 2.6 per cent YoY fall.

"Tech Mahindra's CC revenue to decline by 1.8 per cent QoQ led mainly by its CME vertical due to Comviva seasonality and overall weakness in CME. Enterprise also is expected to decline marginally due to weakness in BFSI and Hitech," said Phillip Capital.

"EBIT may fall 1.5 per cent YoY, EBIT margin mat decline 80 bps YoY due to lack of growth, Comviva seasonality and partial wage hikes," said Phillip Capital.

Apart from the numbers, Phillip Capital believes CEO transition, new strategic initiatives comments, deal TCV (total contract value) and pipeline, margins levers, outlook on growth and margins for FY24 and commentary on 5G will be key things to focus on.

As per the estimates of brokerage firm Motilal Oswal Financial Services, Tech Mahindra's revenue may climb 5.8 per cent YoY in rupee terms while adjusted PAT may decline 14.8 per cent QoQ and may remain flat on YoY terms.

"CME is expected to see a sharp dip in Q1FY24. Enterprise will also remain muted on weak BFSI. We expect a revenue decline of 2.5 per cent QoQ CC in Q1FY24," said Motilal Oswal.

Motilal expects deal wins to remain muted in Q1FY24, due to prolonged conversion timelines. Hiring is expected to remain muted, said the brokerage firm as it expects a further decline in headcount. Margin is expected to take a further hit in Q1FY24, Motilal said.

The outlook on margin and growth in the CME vertical will be the key monitorable, said Motilal Oswal.

Kotak Institutional Equities expects Tech Mahindra to report a 6.9 per cent YoY growth but a 1 per cent QoQ decline in its revenue. Adjusted PAT may rise 5.3 per cent YoY but on QoQ terms, it may fall significantly by 10.5 per cent, Kotak's estimates showed.

"We expect a sharp 3 per cent QoQ decline in revenues in the communications vertical and flat revenues in the enterprise segment. The revenue decline in the communications vertical is due to seasonal weakness in Comviva and ramp-down by a large telecom client," said Kotak.

"Of particular focus will be weak top five client billing. Revenue decline will likely feed into margins. We build in an EBIT margin decline of 40 bps on a sequential basis due to a decline in Comviva's margin. Lack of leverage from growth is the key headwind. Utilization levels are maxed out and will provide limited tailwinds. A weak macro and slow decision-making will likely feed into muted deal wins. We forecast a net new TCV of $700 million, down 12.7 per cent on a YoY comparison," said the brokerage firm.

"We expect investors to focus on—(1) near-term growth outlook given client-specific headwinds and deceleration in TCV growth, (2) turnaround strategy that may be articulated by the CEO-designate, (3) timing of divestments of low-margin businesses that will aid margins but adversely impact revenue growth, (4) outlook for margins in FY2024 noting the current level of margins is lower than normalized levels and can be a low-hanging fruit, (5) outlook for vulnerable segments such as XDS, ERD and network services, which have higher exposure to discretionary spending, (6) health of deal pipeline and positioning in cost take-out deals, (7) any revenue leakage in existing accounts and positioning in vendor consolidation events and (8) outlook for revenue growth in top telecom clients," said Kotak.

Shares of Tech Mahindra have gained about 15 per cent in the last one year against a 19 per cent gain in the equity benchmark Sensex. However, the stock has significantly outperformed the BSE IT pack as the index has gained just about 5 per cent in the last one year.


Disclaimer: The views and recommendations above are those of individual analysts and broking companies, not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 26 Jul 2023, 08:45 AM IST
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