Tech Mahindra Q4 Results Preview: Revenue May Fall, But Margins Seen To Expand; To Announce Dividend

Mahindra Group-backed IT player, Tech Mahindra will be in focus ahead of its Q4 results and dividend recommendations on Thursday. In Q4FY24, the company is likely to report de-growth in the top-line, while TCV deals seen as muted. Among the positives, Tech Mahindra's margins are expected to expand due to robust volumes growth and reshuffling of portilio.

Ahead of Q4, Tech Mahindra's share price stood at Rs 1186.10 apiece, down by 1.2% on Wednesday with a market cap of Rs 1,15,853.33 crore.

In Q3FY24, Tech Mahindra earned a consolidated net profit of Rs 510 crore, which was down by a massive 60.6% YoY but climbed by 3.4% QoQ. Consolidated revenue from operations was at Rs 13,101 crore, down by 4.6% YoY but up by 1.8% QoQ. Cash and cash equivalent stood at Rs 7,012 crore as of December 31, 2023.

In dollar terms, PAT was down by 61% YoY but up by 3% sequentially to $61 million. EBITDA dropped by 47.1% YoY but surged by 6.4% QoQ to $138 million. Further, margins expanded by 40 bps sequentially to 8.8%. In the top-line front, revenue dipped by 5.7% YoY but was marginally up by 1.1% QoQ to $1,573 million. In constant currency, revenue was up by 1.1% QoQ and down by 5.4% YoY.

Tech Mahindra Q4 Preview:

DOLAT Capital On Tech Mahindra:

Expect rev. de-growth of 1.4% QoQ in CC terms due to sustained furloughs impact. Expect OPM to expand by 163bps QoQ led by absence of restructuring costs, Normalized OPM to be around 7%. Key Monitorable: 1) Expect muted TCV (around $500mn), 2) Commentary on turnaround strategy of new CEO & 3) Telecom clients spending outlook.

Axis Securities On Tech Mahindra:

We expect the company to report revenue growth of 0.7% on a QoQ basis. Its margins are likely to expand due to strong growth in volume and reshuffling of the portfolio. Watch out for a) Deal TCVs and pipeline in the communication vertical, b) Pricing scenario, c) Attrition, d) Outlook on growth/margins/DSO days, and e) Commentary on the 5G rollout.

Nirmal Bang On Tech Mahindra:

We expect Tech Mahindra to lay out its medium-term growth and margin plan through an analyst meet sometime in April or May 2024. We would not be surprised if the broad strokes are revealed in the 4QFY24.

We expect Tech Mahindra (TML) to deliver flat CC QoQ growth, which will be impacted by weakness in the CME vertical (~37% of sales), although slight improvements are being seen. Cross-currency tailwind will be ~25bps. We think there will also be some impact of the business rationalization exercise which will continue into 4QFY24 (120bps margin impact in 3QFY24).

In 4QFY24, we expect TCV to be higher than the 3QFY24 TCV of US$381mn. We think the new organizational set up is just falling in place and we think under Mohit Joshi TML will be much more selective in bidding for large deals. The TCV has been falling outside TML's guided range of US$700-1000mn for the past 4-5 quarters and now with the new management and strategy in place, we believe it will gradually move within the guided range.

We expect adjusted EBIT margin to expand by 140bps QoQ to 8.4% in 4QFY24. TML had recorded its lowest ever EBIT margin of 4.7% in 2QFY24 followed by 5.4% in 3QFY24 due to business restructuring, including termination of unprofitable contracts.

Things to watch out for: (1) When should one expect demand recovery in the CME vertical? (2) Update on business rationalization exercise (3) Plans to increase BFSI contribution (4) Have all members of the new leadership been on-boarded and will there be any more top management changes? (5) Timing and extent of salary hikes.

BOBCaps On Tech Mahindra:

Despite a tepid performance over the last few quarters, TechM will deliver during FY25/FY26 due to higher exposure in the communication/enterprise vertical, as a broader 5G rollout will create a new opportunity in spending cycle in this space. We assume coverage on Tech Mahindra with a HOLD rating and TP of Rs 1,366 (P/E of ~23.8x for FY26E, 10% premium to Infosys), considering that the growth cycle seems stable in the medium term compared to its peers.

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