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Informist, Monday, Apr. 21, 2025

 

By Rajesh Gajra

 

NEW DELHI – Weakness in the hi-tech industry and a couple of other sectors, and low demand in the business process outsourcing segment are likely to lead to a decline in the constant-currency revenue of Tech Mahindra Ltd. for the March quarter. This is despite the seasonality factor aiding the revenue of its wholly-owned subsidiary Comviva, which provides digital solutions and platforms to telecom companies.

 

Further, notwithstanding the operating levers being deployed by the company through its project called Fortius over the last couple of years, the weakness in revenue is likely to mute the operating margin fir Jan-Mar. The bottom line may grow in single digits primarily on the back of favourable non-operating parameters.

 

For the March quarter, the company is likely report a consolidated net profit of INR 10.63 billion, up 8% sequentially, according to the average of the estimates of 20 brokerage firms. The consolidated revenue is estimated at INR 134.36 billion, up only 1.1% on quarter. The company's revenue in constant currency terms is seen at $1.56 billion, down 0.7% sequentially, according to the average of the estimates of 16 brokerages.

 

The lowest net profit estimate is INR 9.68 billion by Elara Securities (India), while the highest is INR 12.00 billion by Prabhudas Lilladher. The revenue estimates range from a low of INR 132.24 billion by Nirmal Bang Equities to a high of INR 135.86 billion by Equirus Securities.

 

For the December quarter, the company's consolidated revenue from operations declined 0.2% sequentially to INR 132.86 billion, while the consolidated revenue in constant currency terms increased 1.2%. The consolidated net profit fell 21% on quarter to INR 9.83 billion.

 

Brokerage Kotak Securities' institutional equities division has forecast a 0.6% sequential decline in Tech Mahindra's revenue in constant currency due to "weak hi-tech vertical and seasonal weakness in BPO (business process outsourcing)". These two factors "will more than offset the tailwind from Comviva seasonality", the brokerage said in its preview report.

 

Revenue from the enterprise segment is likely to decline 1.5% on quarter, according to brokerage JM Financial Institutional Securities. The telecom segment will be aided by Comviva seasonality, the brokerage said.

 

On profitability, brokerages differ on whether the operating margin will be flat or expand notably in the March quarter, but they all factor in the wage hikes that the company's management had said at the post-December quarter earnings call with investors, that it would effect during the March quarter. According to the average of the estimates of 16 brokerages, the earnings before interest and tax margin of Tech Mahindra is seen at 10.3%, up slightly from 10.2% reported for the December quarter.

 

"We expect margins to remain flat qoq despite wage hike impact offset by efficiency gains through project Fortius and continued churning out low margin projects," brokerage PhillipCapital (India) said in its preview report. JM Financial, however, believes that "tight cost savings from Project Fortius" will offset the headwinds from wage hikes. Kotak estimates a 31-basis-point expansion in Tech Mahindra's EBIT margin as it believes headwinds from wage revisions will be offset by the benefits of project Fortius.

 

New deal wins, an important parameter for any large information technology company, are likely to improve for Tech Mahindra in the March quarter. New deals wins will be about $750 million, an improvement sequentially, according to Kotak. "More important, new deals are won at higher margin," the brokerage said.

 

The company will detail its March quarter earnings on Thursday. Post the results, investors will watch the performance of key verticals and will be keen to get updates from the management on various issues, including the impact of US tariffs , going forward, given that 50-51% of the company's revenue in the first nine months of 2024-25 (Apr-Mar) came from clients in the Americas.

 

Kotak said in its report that there would be investor focus on Tech Mahindra's growth trajectory in telecom vertical, "a segment in which many peers have announced mega-deals", financial services vertical, hi-tech vertical and business process outsourcing. The brokerage also expects investors to monitor the company's "deal pipeline and positioning in cost take-out deals", and "revenue leaking in existing accounts and positioning in vendor consolidation events".

 

Brokerage PhillipCapital said in its preview report that investors might watch out for progress in the strategic initiatives by the company's managing director and chief executive officer Mohit Joshi. There will also be focus on the telecom vertical outlook, margin levers, and discretionary spend outlook, the brokerage said in its preview report.

 

On Thursday, shares of Tech Mahindra ended 0.2% lower at INR 1,306.80 on the National Stock Exchange of India.

 

Following are the Jan-Mar consolidated earnings estimates for Tech Mahindra based on reports from 20 brokerage firms in descending order of estimate of net profit:

 

Brokerage firm	Net sales	Net profit	Revenue ( In million $)	EBIT margin (%)
	(In INR million)
Prabhudas Lilladher Pvt Ltd	132,900	12,000	1,554	10.2
HSBC Global Research	135,045	11,762	1,559	10.2
Systematix Shares and Stocks (India) Ltd	134,093	11,446	1,550	10.4
Nuvama Wealth Management Ltd	133,591	11,223	--	--
Choice Equity Broking Pvt Ltd	134,905	11,083	--	9.6
Sharekhan Ltd	134,611	10,950	1,554	10.1
Indsec Securities and Finance Ltd	134,800	10,700	1,600	13.9
Antique Stock Broking Ltd	134,908	10,689	1,556	10.5
Equirus Securities Pvt Ltd	135,855	10,658	--	--
InCred Research Services Pvt Ltd	134,589	10,632	1,554	10.5
JM Financial Institutional Securities Pvt Ltd	133,730	10,575	1,549	10.1
ICICI Securities Ltd	134,670	10,445	1,554	10.2
IDBI Capital Market Services Ltd	134,982	10,415	1,557	10.3
Nirmal Bang Equities Pvt Ltd	132,243	10,380	1,556	7.4
Emkay Global Financial Services Ltd	134,611	10,164	--	--
Motilal Oswal Financial Services Ltd	134,000	10,000	1,544	10.3
HDFC Securities Ltd	134,710	9,970	1,557	10.5
PhillipCapital (India) Pvt Ltd	134,408	9,957	1,550	10.0
Kotak Institutional Equities	134,696	9,948	1,555	10.5
Elara Securities (India) Pvt Ltd	133,882	9,677	1,557	--
Average	134,361	10,634	1,557	10.3

 

End

 

US$1 = INR 85.37

 

Edited by Avishek Dutta

 

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