Tech Mahindra Q3 result preview: PAT, revenue to fall YoY; margin outlook, CME growth key monitorable
Tech Mahindra's Q3FY24 earnings are expected to be weak due to seasonality and continued weakness in its communications vertical and weak discretionary spending in key markets. The outlook on margin and growth in the CME vertical will be key monitorables.
IT player Tech Mahindra is set to announce its December quarter (Q3FY24) earnings on Wednesday, January 24. The numbers are expected to be weak due to seasonality as well as the continued weakness in its communications vertical and weak discretionary spending in key markets.
Brokerage firms underscore that apart from the numbers, the outlook on margin and growth in the CME (communications, media and entertainment) vertical will be the key monitorable in Tech Mahindra's Q3FY24 scorecard.
Let's take a look at what top brokerage firms expect from Tech Mahindra's Q3 earnings:
Motilal Oswal Financial Services
Motilal Oswal said Tech Mahindra's revenue might decline 7 per cent year-on-year (YoY) in the Indian rupee terms, following the dip in Q2 as CME and enterprise remain under pressure due to seasonality. The brokerage firm expects a 1.1 per cent QoQ decline in constant currency (CC) revenue for Q3FY24.
Adjusted PAT, as per the brokerage firm, may drop 39.3 per cent YoY and 19.5 per cent quarter-on-quarter (QoQ).
Deal wins are likely to be muted due to fewer working days. The brokerage firm expects deal TCV (total contract value) at $300-500 million in Q36FY24.
Besides, margins are likely to be stable and we do not see any meaningful improvement from the Q2FY24 level.
The absence of growth and continued investments are likely to keep the margin under pressure, the brokerage firm said.
Phillip Capital
Phillip Capital expects Tech Mahindra to report a 6.8 per cent YoY fall in revenue for Q3FY24 while PAT may see a sharp decline of 49.1 per cent YoY.
The brokerage firm expects Tech Mahindra's CC revenue to decline by 0.9 per cent QoQ due to continued weakness in its communications vertical and weak discretionary spending impacting growth in the enterprise vertical.
The estimates of Phillip Capital show Tech Mahindra's EBIT may plunge 53.7 per cent YoY and its EBIT margin may fall by 600 bps YoY in Q3.
New strategic initiatives by CEO and MD Mohit Joshi, Deal TCVs and pipeline, margins levers, outlook on growth and margins for FY24, 5G commentary are the key monitorables, according to Phillip Capital.
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Axis Securities
Axis expects a 5.9 per cent YoY decline in revenue and a 44.9 per cent YoY fall in PAT. EBITDA may fall 49.2 per cent YoY and EBITDA margin may contract by 552 bps, according to the brokerage firm.
Key monitorables are employee addition and visibility on the Telecom and 5G going ahead, Axis said.
Sharekhan by BNP Paribas
According to Sharekhan, Tech Mahindra is expected to report a revenue decline of 0.8 per cent QoQ in CC terms due to continued weakness in the communication vertical.
EBIT margin is expected to recover sequentially by about 90 bps QoQ, following the sharp decline in Q2FY24 and Q1FY24 aided by operational efficiencies, the brokerage firm said.
Nuvama Institutional Equities
Nuvama expects a 7 per cent YoY decline in Tech Mahindra's Q3 revenue while core PAT may plunge 52 per cent YoY.
"Tech Mahindra to report 1 per cent QoQ decline in CC and 1.4 per cent decline in USD revenue - driven by weakness in telecom segment and higher furloughs. Margins to expand by 85 bps QoQ - remaining in the 5-6 per cent range, on the back of various business restructuring actions. Deal wins are expected to be weak YoY, and so is the overall outlook," said Nuvama.
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First Published:24 Jan 2024, 08:56 AM IST
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