Tech Mahindra Q3 Preview: Margins Expected to Improve Amidst Slowing Growth

A preview of the Q3 earnings release by Tech Mahindra

Tech Mahindra releasing its Q3 results

Indian IT major Tech Mahindra will be releasing its Q3 results on 30 January 2023. The fifth-largest IT firm in India sustained a 4% year-on-year decline in its Q2 profits, owing to high expenditures eclipsing the revenue figures.

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Key Expectations

  • A 1.2% increase in profit is expected in its Q3 net profit to a sum of Rs 1,300 crores, 
  • Tech Mahindra’s earnings before interest and taxes are likely to increase by 7.7% from the previous quarter. The EBIT for Q3 is likely to be Rs 1,580 crores,
  • The consolidated profit after tax is likely to rise by 3.8% quarter-on-quarter, but it will mean a decline in the year-on-year results,
  • The revenue for the quarter that ended 31 December 2022 is expected to rise by 2.8% to Rs 13,500. This would amount to $1,641 million, a 0.2% increase from the previous quarter. Another report claimed that there could be an 18% year-on-year increase in revenue and a 3.7% increase from the previous quarter, 
  • The firm’s margin is expected to expand by 50 basis points to touch 11.7%. An increase in margin is a promising sign for a firm’s profitability,
  • IT services are set to account for 86.8% of the total Q3 revenue, with business process outsourcing expected to contribute the rest.

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Other Observations

Nirmal Bang Institutional Equities has predicted that Tech Mahindra will see the effects of a general industry slowdown in its revenue growth. The manpower exits in Banking, Financial Services, Insurance and high-tech companies are seen as the reason for the slowdown. Kotak Institutional Equities added that the demand slowdown in Europe will contribute to weakened growth. Depreciation in the rupee is likely to counter the industry slowdown in terms of revenue and profitability. A 30 basis point change in cross-currency values was observed in Q3. Continued rationalisation in portfolios and the impact of holidays are also likely to influence revenue growth.

ICICI Direct noted that deals won during the quarter would be on the lower side of the $700-$1 billion range. Emkay Global pointed out that deal wins and changes, attrition, pricing, revenue and margin growth will be the key influences to keep an eye on in Q3. Besides, other factors worth considering include the IT budget for the calendar year, enterprise business outlook, exits from low-margin businesses, project delays and cancellations, and 5G spending.

IT industry has been less than promising in terms of manpower additions. TCS and Wipro saw a reduction in their employee numbers, while Infosys and HCL have added fewer employees compared to the last quarter. Shareholders and market watchers will be keeping an eye on Tech Mahindra's latest numbers as they roll in.

Also Read: Is HCL Technologies on your radar? Know what to do as the company’s Q3 earnings beat estimates



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