Tech Mahindra is set to announce its financial results for the third quarter of FY23 on Monday. Accordingly, the IT major’s stock will be in focus on exchanges. The Q3 of FY23 is likely to be a mixed bag with PAT seen to decline while revenue growth is likely to be in double-digit year-on-year. There are expectations of slower growth in segments like BFSI and hi-tech. Also, deal wins may be on lower levels than company’s expectations. However, EBIT margins are expected to improve in Q3.
Also, Tech Mahindra’s attrition rate and net addition of employee counts will be keenly watched. Its peers TCS and Wipro have reduced their workforce in Q3FY23, while Infosys and HCL Tech made lower additions on a quarter-on-quarter basis.
In the September 2022 quarter, Tech Mahindra posted a 4% YoY decline in consolidated net profit to ₹1,285.4 crore as higher expenses offset the rise in revenue. Meanwhile, consolidated revenue from operations stood at ₹13,129.50 crore higher by 20.6% YoY and 3.3% QoQ. The company’s attrition rate dipped to 20% in Q2FY23 from 22% in the previous quarter.
Ahead of Q3 earnings, last week, on Friday, Tech Mahindra shares closed at ₹1,030.15 a piece down by ₹20.70 or 1.97% on BSE.
Tech Mahindra Q3 preview:
In its Q3 preview report, ICICI Direct analysts said that Tech Mahindra’s revenue growth in Q3 is likely to be impacted by higher furloughs, continued portfolio rationalization, and fewer working days.
“We expect the company to report 0.5% QoQ revenue growth in CC terms. Dollar revenue growth is expected to be at 0.3% QoQ factoring in a 20 bps cross-currency headwind. Rupee revenues are expected to grow 2.9% QoQ aided by rupee depreciation ,” the brokerage’s note said.
Similarly, Emkay Global in its preview report said, “We expect 0.5% QoQ growth in USD revenue with cross-currency headwinds of 30bps. We expect broadly similar growth across the enterprise business and communications in Q3.”
Also, ICICI Direct’s note added that slower growth is expected to be across BFSI and hi-tech while there is expected to be a seasonal uptick in the retail and CME verticals.
Further, ICICI Direct’s note said, “Deal wins for the quarter are likely to be at the lower end of the guided range of $700-$1 billion. Margins are expected to improve by 30 bps QoQ to be aided by supply side easing. Some continued pricing benefit and rupee depreciation with higher subcontractor costs continue to be headwinds for the quarter.”
Emkay’s report added, “We expect EBIT margin to expand by 100bps sequentially on account of absence of one-off impairment costs, operating efficiencies, pricing, and rupee depreciation.”
Among key things to watch out for in Q3 as per Emkay’s note are — 1) CY23 IT budget outlook, 2) communications and enterprise business outlook, 3) impact of exit from the low-margin business and future plan, 4) any delay/deferral/cancellation of projects, 5) update on 5G spending amid macro uncertainties, 6) FY23 revenue growth and margin outlook, 7) attrition, 8) pricing, and 9) deal intake during the quarter, deal pipeline, any change in the nature of deals – a mix of cost takeouts versus discretionary and deal closure momentum.
ICICI Direct expects Tech Mahindra to report a revenue of ₹13,509.2 crore in Q3 up by 18% YoY and 2.9% QoQ. EBITDA seen at ₹2,080.4 crore up by 1% YoY and 4.9% QoQ. However, PAT is factored in ₹1,344.2 crore lower by 1.8% YoY but up by 4.6% QoQ.
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