Tech Mahindra Q3 preview | Sequential revenue growth to be muted, PAT may rise 3.8%

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IT services company Tech Mahindra is expected to report a muted revenue growth of 0.4 percent sequentially in constant currency terms, impacted by higher-than-expected furloughs, when it releases December quarter numbers on January 30.

According to an average of estimates of five brokerages polled by Moneycontrol, consolidated profit after tax (PAT) of India’s sixth largest IT company may jump 3.8 percent on a sequential basis but decline 0.6 percent year-on-year to Rs 1,359 crore.

Consolidated revenue, in rupee terms, is expected to increase 18 percent YoY and 3.7 percent quarter-on-quarter to Rs 13,612 crore. In dollar terms, it is seen at $1,639 million, up 6.9 percent from the year-ago period and 0.1 percent QoQ.

Also Read: Davos 2023 | Tech Mahindra's CP Gurnani: The way forward for IT services firms isn't negative

“Tech Mahindra’s revenue growth will be impacted by the general demand slowdown. We believe that will be due to higher-than-normal furloughs in BFSI/Hi-tech verticals countered by seasonal strength in Retail,” Nirmal Bang Institutional Equities analyst said.

BFSI is short for Banking, Financial Services and Insurance.

Like industry bellwether TCS, Tech Mahindra, too, will likely see demand challenges in Europe. “Weak Europe and macro will feed into muted quarter. Lack of growth will likely feed into margins,” Kotak Institutional Equities said.

The company’s EBIT (earnings before interest and taxes) margin is pegged at 11.7 percent, a 30 basis points (bps) improvement QoQ and 310 bps decline YoY. “Benefit of rupee depreciation will be offset by impact of furloughs and lack of leverage on growth,” Kotak analysts said.

One basis point is a hundredth of a percentage point.

Analysts expect the total contract value for the quarter to be at the lower end of the $700 million-$1,000 million bracket on slower decision-making by clients.

Key monitorables

The Street will closely watch the management commentary on attrition and employee addition. Net addition in India’s top four IT companies is down 93 percent sequentially. Lower net addition is being seen as an indicator of slowing growth but attrition, too, is coming down across companies.

Also Read: TCS, Infosys, Wipro, HCLTech net employees addition drops 93% in Q3FY23

The progress made on the selection of a new chief executive officer who will take over from CP Gurnani, who retires in December 2023, will also be keenly followed.

Measures to improve margins, telecom deal momentum, especially related to 5G networks, M&A strategy and updates on recent acquisitions will be on analysts' and investors' radar as well.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.​