Earnings Outlook
Weak mfg scvs, furloughs to drag Tech Mahindra's earnings
This story was originally published at 19:45 IST on 16 January 2025
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By Arya S. Biju
MUMBAI – Cross-currency and furlough headwinds, continued weakness in the telecommunications vertical, seasonality-impacted business process services and operations vertical, and the weak manufacturing segment may drag down the overall revenues of Tech Mahindra Ltd. on a sequential basis in the December quarter, according to analysts. Its seasonally strong Comviva business is, however, expected to partially offset this.
The consulting and digital solutions provider is expected to report a 15% sequential decline in consolidated net profit for the December quarter at INR 10.65 billion, according to an average of estimates from 15 brokerage firms. Nirmal Bang Equities had the highest estimate for net profit at INR 11.41 billion, while HDFC Securities had the lowest estimate at INR 9.76 billion. However, on a year-on-year basis, the consolidated net profit is expected to double.
The consolidated revenue of the company for the December quarter is expected to be INR 133.68 billion, up 0.4% sequentially and up 2% on year, according to the average of the estimates. Nirmal Bang had the highest estimate for revenue at INR 135.02 billion, while Motilal Oswal Financial Services had the lowest estimate for net sales at INR 132.00 billion. Analysts expect a cross-currency headwind of around 80-100 basis points to impact the company's revenue for the quarter.
Tech Mahindra is expected to report an operating margin or earnings before interest and tax margin of 10.03% for the December quarter, higher than the 9.6% reported in the previous quarter, according to the average of estimates from nine brokerages. The operating margin of the company is seen improving on quarter owing to benefits from the margin improvement program Project Fortius, delayed wage hikes, and operational efficiencies. However, Motilal Oswal Financial Services and Nirmal Bang expect the gains from the margin improvement project to be offset by furloughs and currency headwinds. Motilal Oswal expects the margin to remain largely flat on quarter for Oct-Dec, while Nirmal Bang expects it to decrease by 30 basis points.
Analysts are divided on the technology company's deal wins in the quarter. Four brokerage firms expect deal wins to be higher than the $603 million reported in Jul-Sept. Indsec Securities and Finance expects deal wins to be around $600 million-$800 million, while Motilal Oswal sees a steady total contract value in the quarter driven by the slight improvement in demand. Nirmal Bang, however, expects the new deal wins for the December quarter to be around $300 million-$500 million, lower than the previous quarter.
In the post-earnings conference call after the September quarter earnings, Tech Mahindra had said it would prioritise margins over large deals at this point. However, there is a huge will to win and to make sure that the company is getting a fair share of large deals, it had said.
Analysts expect investors to keenly watch the commentary on the demand environment, deal pipeline and deal closure momentum, pricing environment, hiring plan and attrition trends, and updates on the telecom, communication, and enterprise verticals. Investors will also look for growth and margin aspirations for FY25, commentary on discretionary spending, updates on artificial intelligence deals and how the margin improvement program is panning out.
The company will announce its Oct-Dec earnings on Friday. On Thursday, shares of the company closed at INR 1,687.65 on the National Stock Exchange, up 0.7%.
Following are the Oct-Dec earnings estimates for Tech Mahindra based on reports from 15 brokerage firms in descending order by the estimate of net profit:
| Brokerage firm |
Net sales |
Net Profit |
EBITDA |
Revenue (mln $) |
?IT margin |
| --------------in INR mln------------- | |||||
| Nirmal Bang Equities Pvt. Ltd. | 135,020.00 | 11,408.00 | -- | 1,590.00 | 9.30 |
| Kotak Institutional Equities | 133,836.00 | 11,277.00 | 18,016.00 | -- | -- |
| Sharekhan Ltd. | 133,497.00 | 11,220.00 | -- | -- | -- |
| IDBI Capital Market Services Ltd. | 133,605.00 | 11,089.00 | -- | 1,583.00 | 10.10 |
| Prabhudas Lilladher Pvt. Ltd. | 133,500.00 | 11,000.00 | -- | 1,581.90 | -- |
| Emkay Global Financial Services Ltd. | 134,530.00 | 10,991.00 | 18,969.00 | -- | -- |
| Indsec Securities and Finance Ltd. | 134,500.00 | 10,800.00 | -- | 1,600.00 | 10.10 |
| Centrum Broking Ltd. | 133,621.00 | 10,655.00 | -- | -- | 10.00 |
| Motilal Oswal Financial Services Ltd. | 132,000.00 | 10,400.00 | 17,000.00 | 1,565.00 | 9.70 |
| Nuvama Wealth Management Ltd. | 132,732.00 | 10,377.00 | 17,401.00 | 1,575.00 | 11.70 |
| JM Financial Institutional Securities Pvt. Ltd. | 132,927.00 | 10,356.00 | 17,415.00 | -- | -- |
| Elara Securities (India) Pvt. Ltd. | 132,785.00 | 10,336.00 | -- | 1,581.00 | 10.00 |
| Systematix Shares and Stocks (India) Ltd. | 134,894.00 | 10,027.00 | 1,596.00 | 9.50 | |
| KR Choksey Research | 133,460.00 | 9,980.00 | -- | -- | -- |
| HDFC Securities Ltd. | 134,360.00 | 9,760.00 | -- | 1,590.00 | 9.90 |
| Average | 133,684.47 | 10,645.07 | 17,760.20 | 1,584.66 | 10.03 |
End
US$1 = INR 86.55
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Saji George Titus
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