Tech Mahindra Q2 Preview: Revenue Likely To Fall On Broad-Based Slowdown; Watch Out For Dividends On Oct 25

Mahindra Group-backed tech flagship company, Tech Mahindra is next in line to announce its September 2023 quarterly earnings on October 25. It would be among the large-cap basket of the IT segment, following its peers TCS, Wipro, HCL Tech, Infosys, LTIMindtree and L&T Technology Services who have all declared their Q2 report. In the quarter under review, Tech Mahindra's topline is seen to be weak, while PAT is estimated to drop. However, among good news for investors, the company will announce an interim dividend.

Ahead of the earnings day, Tech Mahindra's share price ended at Rs 1,155.15 apiece, down by 1.32% on BSE after market hours of Monday's trade. Its market cap is nearly Rs 1.13 lakh crore.

In its regulatory filing, Tech Mahindra said, "We would like to inform you that the Board of Directors will also consider a proposal for payment of interim dividend for the financial year 2023-24, at its meeting scheduled on 24th October & 25th October 2023."

For the same, Tech Mahindra said it has fixed November 2, 2023, as the record date for determining the members entitled to receive the Interim dividend, if approved by the Board.

On October 25th, Tech Mahindra will also declare its consolidated and standalone financial results on October 25 as well for the quarter ending September 30, 2023.

What To Expect from Tech Mahindra's Q2 Results:

In its preview note, IIFL Securities said, "Focus on organization restructuring: We forecast TECHM's revenues to decline 0.5% cc QoQ, due to continued broad-based demand slowdown across Communication and Enterprise verticals. Deal wins in 2Q will probably continue to be weak, which could hurt near-term growth. We expect margins to contract by 130bps QoQ, due to the org restructuring exercise undertaken during the quarter."

Meanwhile, Incred Equities note said, "Softness in telecom and enterprise segment to impact revenue. Telecom vertical likely stabilizing." The brokerage believes that revenue decline, residual wage hike impact on senior employees, and likely one-off provisions to impact EBIT margins. However, a quarter-on-quarter decline in EBIT may impact PAT.

For Tech Mahindra in Q2FY24, JM Financial is estimating a -0.95% cc revenue growth with an 8bps cross currency headwinds translating into -1.03 QoQ USD growth. Further, it expects -1.5%/-0.75% QoQ growth in Telecom/Enterprise. Lastly, the brokerage has built-in 400bps one-time impact on margins, while normalised margins to be around 8.8%, flat QoQ.

Moreover, Axis Securities note said, "We expect the company to report revenue de-growth of 0.1% on a QoQ basis while its margins are likely to remain stable during the quarter. Watch out for a) Deal TCVs and pipeline from communication vertical, b) Pricing scenario, c) Attrition, d) Outlook on growth/margins/DSO day, and e) Commentary on 5G rollout."

Finally, Nuvama's note said, "TechM to report 0.7% QoQ decline in CC and -0.9% decline in USD - driven by weakness in Telecom segment and weak dealflow in earlier quarters. Margins to decline further by 100 bps QoQ on the back of various business restructuring actions. Deal wins are expected to be weak YoY, and so is the overall outlook."

Among key comments to watch out for on October 25, as per IIFL are -- 1) Key benefits of the org restructuring exercise. 2) Commentary on revenue and margin outlook for 2H. 3) Deal win quantum and nature combined with the pipeline. 4) Structural margin levers to take current margins closer to peers. 5) Capital allocation.

IIFL Securities estimates Tech Mahindra's revenue is 13,105.4 crore in Q2FY24, down by 0.4% QoQ and 0.2% YoY. Net income is forecasted at Rs 567.4 crore, a decline of 18.1% QoQ and 56.7% YoY.

During the June 2023 quarter, Tech Mahindra posted a consolidated net profit of Rs 693 crore, which declined by 38% QoQ and 28.8% YoY. Revenue was at Rs 13,159 crore; down 4.1% QoQ, up 3.5% YoY. EBITDA at Rs 1,338 crore; down 33.8% QoQ, down 28.8% YoY. Total headcount stood at 148,297 down 4,103 QoQ.