Earnings Outlook
Muted deal wins, weak core ops to slow Tech Mahindra
This story was originally published at 21:38 IST on 18 October 2024
Register to read our real-time news.Informist, Friday, Oct. 18, 2024
By Anjana Therese Antony
MUMBAI – Persisting weakness in the core communications segment, lower discretionary spending, and muted deal wins are likely to have hit earnings growth of Tech Mahindra Ltd yet again in the September quarter. However, measures taken to achieve cost efficiency are likely to keep margins intact, analysts said.
The Pune-based company's consolidated net profit is seen rising 15.3% sequentially to INR 9.82 billion, according to the average of estimates from 17 broking firms. This would be slower than the 29% on-quarter growth reported by the company in Apr-Jun. Axis Securities has the highest net profit estimate of INR 10.52 billion and Nirmal Bang Institutional Equities has the lowest of INR 8.52 billion for the company's profit.
The consolidated revenue is expected to grow 1.4% on quarter to INR 131.90 billion, as per estimates, which would be largely similar to the 1% sequential growth it posted during the June quarter. Among the 17 broking firms, Nirmal Bang has the highest top line estimate of INR 132.84 billion, while Systematix Shares and Stocks (India) has the lowest view of INR 130.79 billion.
The communications vertical, which contributed to around 33% of the revenue, has been posting sequential decline in top line for the past five consecutive quarters till Apr-Jun and the trend is expected to continue this time, too, analysts echoed. While the worst is expected to be behind for this segment, analysts believe the time for recovery could be longer.
The company is scheduled to release its results Saturday and the post-earnings press conference is scheduled at 0800 IST. Market participants will closely watch for management comments on the deal pipeline for the communications segment, growth outlook, deal related to generative artificial intelligence, and trends in discretionary spending, among others.
MARGIN, DEALS
Tech Mahindra's operating margin, or earnings before interest and taxes margin, is seen from 9.0-9.6% in the September quarter, higher than the 8.5% it posted a quarter ago. This would be supported by reduced subcontracting expenses, absence of wage hikes, better integration of portfolio companies and savings under project Fortuis, ICICI Securities said in its earnings preview report.
Project Fortuis is a three-year margin expansion plan the company announced in April, aimed at achieving an over 15% operating margin and growing revenue at a higher pace than the peer average. The announcement was cheered by investors, but analysts have been waiting for the benefits of the margin expansion programme to kick in before looking for re-ratings or revision of the outlook on the company.
Broking firms expect the company's total contract value growth to be flat as no major deals were announced in the $400 million-$600 million range, and macro uncertainty. In the June quarter, Tech Mahindra won net new deals worth $534 million, slightly higher than the $500 million received in Jan-Mar. Its number of active clients had declined to 1,165 from 1,172 in Jan-Mar.
Shares of Tech Mahindra closed 0.7% lower at INR 1,687.90 Friday on the National Stock Exchange. This is 8% lower than its record high of INR 1,838 it had hit on Dec. 30, 2021. The stock has risen 2.5% in the past seven days and 42% in 52 weeks.
Following are the Jul-Sept earnings estimates for Tech Mahindra based on reports compiled by Informist from 17 brokerage houses:
| Broking Firm | Net Sales (in INR million) | Net Profit (in INR million) | Revenue (mln $) | % EBIT margin |
| Antique Stock Broking Ltd | 130,907 | 9,546 | -- | -- |
| Axis Securities Ltd | 132,700 | 10,520 | -- | 9.6 |
| Dolat Capital Market Pvt Ltd | 132,473 | 9,994 | 1,581 | 9 |
| Emkay Global Financial Services Ltd | 132,560 | 9,855 | -- | -- |
| HDFC Securities Ltd | 131,860 | 9,580 | 1,574 | 9.1 |
| ICICI Securities Ltd | 132,176 | 9,490 | 1,578 | 9.2 |
| IDBI Capital Market Services Ltd | 131,320 | 10,112 | 1,568 | 9.4 |
| Indsec Securities and Finance Ltd | 132,200 | 10,500 | 1,600 | 9.6 |
| Kotak Institutional Equities | 132,086 | 9,868 | 1,577 | 9.2 |
| KR Choksey Research | 132,373 | 9,447 | -- | 9.3 |
| Motilal Oswal Financial Services Ltd | 131,000 | 10,000 | 1,564 | -- |
| Nirmal Bang Equities Pvt Ltd | 132,843 | 8,515 | 1,579 | 9.3 |
| Nuvama Wealth Management Ltd | 131,863 | 10,253 | 1,570 | 9.2 |
| PhillipCapital (India) Pvt Ltd | 131,598 | 9,863 | 1,570 | 9.1 |
| Prabhudas Lilladher Pvt Ltd | 131,600 | 10,100 | 1,571 | 9.1 |
| Sharekhan Ltd | 132,010 | 9,890 | -- | -- |
| Systematix Shares and Stocks (India) Ltd | 130,786 | 9,334 | 1,566 | 9 |
| Average | 131,903.24 | 9,815.72 | 1,574.84 | 9.24 |
End
US$1 = INR 84.07
Edited by Deepshikha Bhardwaj
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