Tech Mahindra is set to release its Q2FY25 earnings on October 19 with a mixed bag of expectations. While revenue growth might stay tepid on a sequential basis due to lacklustre deal wins, margins could expand, thanks to cost controls and operational efficiencies.
According to the average of 11 estimates compiled by Moneycontrol, Tech Mahindra's revenue is expected to rise by 1.3 percent quarter-on-quarter to Rs 13,171 crore, while net profit is likely to jump 21.7 percent QoQ to Rs 1,036 crore.
Earnings estimates of analysts polled by Moneycontrol are in a narrow range, so any positive or negative surprises may elicit a sharp reaction in the stock.
Tech Mahindra Q2FY25 Preview
What factors are driving the earnings?
The earnings growth for the Q2FY25 quarter is expected to be driven by efficiency measures introduced by the new management under CEO Mohit Joshi. BNP Paribas said, "Tech Mahindra exhibits significant turnaround potential. The new CEO has also reorganised Tech Mahindra to bring agility, service line innovation, delivery quality and better economics." However, challenges remain in the form of weak deal wins and the company's heavy reliance on the Communications vertical.
Deal Wins: Multiple analysts were of the view that Tech Mahindra could see a lack of large deals weighing on its revenue. "We forecast muted growth of 0.4 percent, an outcome of middling deal wins over the past few quarters and a challenging discretionary spending environment," said Kotak Institutional Equities. Jefferies expects Tech Mahindra's deal wins to be in the $500-600 million range.
Tech Mahindra Q2FY25 Estimates
Margins Expansion: Analysts expect the company's margins to improve driven by Project Fortius, a three-year plan unveiled by Tech Mahindra in April to achieve a 15 percent operating margin by FY27.
IDBI Capital expects a 92 bps QoQ margin increase due to "on account of turnaround measures by management, execution rigor". Easing supply-side constraints, lower visa costs, falling attrition, improved utilisation, and reduced subcontracting costs are also expected to aid margin expansion in the September quarter.
3) Turnaround Hopes: Investors are hopeful that Tech Mahindra could see a marked turnaround under Joshi. But, caution persists as Tech Mahindra's recent operating performance, weak deal wins, and high exposure to the low growth Communications vertical could delay its turnaround process, said BNP Paribas.
What to look out for in the quarterly show?
Analysts will be keenly observing the progress of Joshi's strategic initiatives, especially his plans to drive growth in the Communications vertical, improve margins to 15 percent by FY27, and push Tech Mahindra's revenue growth above the peer average. Deal wins, particularly in the BFSI and telecom sectors, and the health of the 5G pipeline will also be watched.
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