Tech Mahindra Q3 preview: Revenue growth seen slowest in 7 quarters; 2023 outlook critical

The Mahindra group company will release its numbers later in the day.

According to an ETNow poll, Tech Mahindra’s consolidated revenue is expected to grow nearly 3% sequentially to Rs 13,490 crore. This will be the slowest growth in 7 quarters.

In the last 7 quarters, Tech Mahindra’s sales have grown by 3-7% sequentially.

Dollar revenue growth is also expected to be moderate at just 0.2% to $1,642 million.

Operating margin is seen improving just 2 basis points on quarter to 11.6%.

The muted revenue growth and operational performance will see the consolidated net profit drop by 3% sequentially to Rs 1,245 crore.

Kotak Equities
The brokerage expects muted revenue growth of 0.5% QoQ. Furloughs in hi-tech and other verticals, weak Europe and macro will feed into a muted quarter.
The lack of growth will likely feed into margins, as EBIT margin increase will be restricted to just 40 bps QoQ and will likely decline 290 bps YoY.

The benefit of rupee depreciation will be offset by the impact of furloughs and lack of leverage on growth.

It forecasts net new deal wins of $700 million, down 6.7% YoY.

The emphasis will be high on levers to increase margins, especially noting that pricing increase is difficult in the current environment and trade-offs involved given aggressive cost controls. The brokerage expected investor to focus on the reasons for revenue growth underperformance versus peers, underwhelming margins despite multiple measures to improve it from recent lows, deal pipeline, pricing leverage, telecom deal momentum, especially related to 5G networks.

Besides these, the progress made on selection of a new CEO in the run up to the retirement of the current one in December 2023 and performance of acquired entities will also be tracked.

Securities
The brokerage expects flattish growth in constant currency terms due to weak macro, heightened furloughs, and slower conversions. Revenue growth in the BFSI is expected to remain soft.

It expects deal wins to be within the $500-600 million quarterly band. Operating margin is likely to see an improvement of 20 bps QoQ during the quarter. Outlook on margin and growth in the telecom vertical in FY23 will be the key monitorables for the brokerage.

Sharekhan
The company is expected to report soft constant currency revenue growth of 0.7% QoQ with a likely 20 bps cross currency tailwind resulting in higher reported dollar revenue growth of 0.9% QoQ.

It expects EBIT margins to improve by 50 bps QoQ due to benefits of lower subcontracting expenses and higher billable freshers in addition to the weaker rupee.

Axis Securities
The brokerage expects revenue to grow by 2.4% QoQ, aided by ramp-up on the new deal wins. Margins are likely to expand aided by higher offshoring and favourable currency mix. Key monitorables for the brokerage will be new deal ramp up, employee addition and visibility on 5G going ahead.

Emkay Global Financial
The brokerage expects 0.5% QoQ growth in dollar revenue with cross-currency headwinds of 30 bps. It expects broadly similar growth across the enterprise business and communications in Q3.

EBIT margin is likely to expand by 100 bps sequentially on account of absence of one-off impairment costs, operating efficiencies, pricing, and rupee depreciation.

Key things to watch out for include, 2023 IT budget outlook, communications and enterprise business outlook, and impact of exit from the low-margin business and future plan.

Further, any delay or cancellation of projects by clients, update on 5G spending amid macro uncertainties, FY23 revenue growth and margin outlook, and attrition trends will also be watched.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)