Tech Mahindra may log in 11% decline in net profit for Q4, margins likely to remain flat

The Street has high expectations from the top management changes at Tech Mahindra.

IT services major Tech Mahindra is likely to post an 11 percent on-year decline in consolidated net profit at Rs 1,336 crore, a 3 percent on-quarter rise, when it reports the fourth-quarter earnings on April 27, according to a poll of brokerages.

Consolidated revenue may increase 14 percent YoY to Rs 13,809 crore while remaining flat on a quarterly basis. On a constant-currency (CC) basis, analysts largely expect revenue to decline.

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“Extended furloughs, broad-based softness and persistent headwinds in the telecom client will result in a 0.7% CC revenue decline in 4QFY23,” says brokerage firm Motilal Oswal, which expects deal wins for the quarter to be in the range of $500-700 million and believes hiring will remain muted.

“Due to deal closures slowing, we expect its order book to be in the range of $500 million-700 million versus the $795 million reported in Q3FY23. On account of weak digital capability, loss of wallet share among its top clients and generally weak execution, we expect TechM to report one of the weakest growth (within our coverage) at 3.4 percent in CC terms in FY24E,” according to ICICI Securities. The brokerage pegs QoQ CC revenue growth at negative 0.5 percent.

Earnings before interest and taxes (EBIT) may see a 4 percent rise YoY to Rs 1,670 crore, increasing 1.4 percent quarterly. Margins are projected to see a slight decline YoY while remaining flat sequentially.

Despite having the margin levers such as low attrition, lower sub-con costs and currency tailwinds, the company expects the margins to remain flat in Q4FY23 (majorly owing to low revenue growth), says B&K Securities.

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Last month, the company appointed Mohit Joshi as MD & CEO with effect from December 20, 2023 to December 18, 2028.

“The Street has high expectations from the top management changes at TechM but we believe it would be difficult to change the DNA of an organisation by just the top management change. Having said that, we would be closely observing the new strategy to be rolled out by the new CEO in the coming quarters. If we see a perceptible change in the company’s digital capability and execution, we may take a re-look at our rating and target price,” said ICICI Securities, which has a ‘Reduce’ rating on the company.

Other things to watch out for include large deal wins, commentary on demand across all verticals especially on enterprise business, 5G trends and outlook on communication and margins, macro conditions in Europe, M&A, capital allocation and an update on future growth objectives.

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