TechM Q3 results today: Profit may plunge 45%; capital allocation policy, other things to watch

The Mohit Joshi-led Tech Mahindra Ltd (TechM) is set to report 45 per cent year-on-year (YoY)drop in profit for the December quarter on 5-7 per cent de-growth in sales. Margin is seen expanding sequentially due to absence one-time cost as seen in the September quarter. Deal wins are seen in $400-500 million range.  A seasonal pick-up in Comviva & retail BPO and growth in the manufacturing segment should, to an extent, offset headwinds in hi-tech, telecom and financial services, said brokerages.

All eyes will be on update on telecom and enterprise demand outlook, demand commentary related to 5G technology, new business total contract value (TCV) wins, deal pipeline and client decision making for same.  Updates on capital allocation policy and strategy roadmap under the leadership of newly appointed CEO designate will also be keenly watched.

"We expect quarterly financials to have limited sway in the near term, with the focus on turnaround under Mohit Joshi. The recently announced organizational structure can lead to a few exits at the leadership level," said Kotak Institutional Equities. 

Equirus Securities expects TechM to report a sharp 42.55 per cent year-on-year (YoY) drop in profit at Rs 745.50 crore compared with Rs 1,296.60 crore in the year-ago quarter. Sales are seen falling 6.5 per cent YoY to Rs 12,838.90 crore from Rs 13,734.60 crore in the year-ago quarter. Dollar revenue is seen at $1.54 billion, down 0.9 per cent QoQ, led by led by demand softness continuing in communication and in enterprise segment.

"EBIT margins are expected to improve by 276 basis points QoQ led by absence one time cost worth 260 bps accounted in 2Q to be partly compensated by soft growth. On an adjusted basis excluding non- recurring charges expect margins improve 20 bps QoQ. We expect softness in deal TCV to continue even in Q3FY24," it said

Axis Securities expects Tech Mahindra to report revenue growth of 0.5 per cent on a QoQ basis while expecting margin to expand on strong growth in volume and reshuffling of the portfolio. It believes investors would watch out for deal TCVs and pipeline from the communication vertical, pricing scenario, attrition, outlook on DSO days, and commentary on the 5G rollout. This brokerage sees profit plunging 44.9 per cent YoY to Rs 715 crore. revenue is seen plunging 5.9 per cent YoY to Rs 12,930 crore.

Kotak Institutional Equities is expecting 52 per cent drop in profit on 6.6 per cent fall in sales. It expects investor to focus on turnaround strategy and implications of announced organisation structure, timing of divestments of low-margin business that will aid margins, but adversely impact revenue growth, medium-term revenue growth and margin

outlook, outlook for vulnerable segments and health of the deal pipeline and positioning in cost take-out deals. Any revenue leakage in existing accounts and positioning in vendor consolidation events and outlook for revenue growth in top telecom clients will also be keenly followed.

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