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Tech Mahindra Q4 Preview | Profit may grow 30% and revenue 24%

Experts expect the rise in employee attrition and travel costs to impact EBITDA margins, which are likely to shrink by around 235 bps on year and 35 bps on quarter to 17.6 percent

May 13, 2022 / 11:32 AM IST
 
 
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Tech Mahindra Ltd, one of India’s top-tier IT services company, is likely to report an on-year growth of 30 percent in consolidated profit after tax (PAT) when it declares its March 2022 quarter results later on May 13.

The company’s consolidated revenue is likely to see a jump of 24 percent for the quarter from the year-ago period. Experts have pegged the PAT for the quarter at around Rs 1,410 crore on revenue of Rs 12,050 crore.

The company recorded a consolidated profit of Rs 1,081 crore during the corresponding quarter of the previous financial year when it achieved revenues of Rs 9,730 crore.

Profit during the previous quarter came in at Rs 1,369 crore and the revenue was at Rs 11,451 crore.

“We forecast sequential revenue growth of 5.1 percent in c/c driven by 2.6 percent growth on an organic basis and 2.5 percent contribution from CTC, Allyis, Activus and Lodestone acquisitions,” a Kotak Institutional Equities report said.

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The brokerage expects growth to be spread across telecom as well the enterprise segment. Comviva, the telecommunication vertical, will also contribute to growth due to seasonal strength, though it will not be as pronounced as in the earlier years.

Experts expect the rise in employee and travel costs to have an impact on the EBITDA (earnings before interest, tax, depreciation and amortisation) margin, which is likely to shrink 235 basis points (bps) on-year and by around 35 bps on quarter to 17.6 percent. One basis point is one-hundredth of a percentage point.

EBIT margins are likely to decline as attrition and proactive alignment of compensations would hurt overall numbers.

“EBIT margins are expected to decline at -50 bps QoQ due to high SG&A (selling, general & administrative) expenses,” a report from the brokerage firm Phillip Capital said.

The brokerages expect $ 600-800 million of net new deal wins, a decline on a yearly basis and a growth on a sequential basis.

Attrition is likely to remain elevated and the focus will be on attrition at senior and mid-senior levels, as the company is inconsistent in wage revision compared to its peers.

Investors and experts will focus on the FY23 outlook. Research firm Emkay Research expects the company to guide for double-digit revenue growth with 18-20 percent EBIT margins.

Other monitorbales include CY22 IT budget, deal wins, deal pipeline and pace of deal closures, the growth outlook for ER&D and the products business, the demand outlook for major verticals like BFSI, manufacturing, and healthcare, pricing environment, and attrition. Update on the mergers and acquisition strategy and understanding the integration risks of new acquisitions will be watched as well.

Disclaimer: The views and investment tips offered by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.



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Gaurav Sharma
first published: May 13, 2022 11:32 am
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