Tech Mahindra is bracing for a subdued revenue performance but expecting a robust increase in profit for the fiscal third quarter of FY24. Scheduled to unveil their earnings on January 24, analysts forecast a slight revenue uptick of 0.72 percent quarter-on-quarter to Rs 12,957 crore, despite a challenging period for its primary telecom and communications sector, which accounts for almost 40 percent of its business and is currently experiencing a stark growth deceleration.
The anticipated net profit for Tech Mahindra is considerably more optimistic, with a projected 54 percent surge QoQ, suggested to be around Rs 763 crore. This positive shift is credited to an expected margin expansion, with EBIT margin likely to improve to 6.98 percent from previous quarters, indicating a 228-basis-point increase. The impact of structural business reforms by Tech Mahindra seems to be a contributing factor to this margin elevation. The company has undergone significant operational modifications, including the segmentation of its Americas business into three units, the amalgamation of its Europe telecom and non-telecom sectors, the unification of its Asia Pacific and Japan operations, and establishment of a standalone unit for India.
However, the telecommunications and communications vertical continues to be a concern, potentially hindering revenue growth. Some reports are predicting a decline in constant currency and USD revenue due to this vertical’s weakness and an increase in furloughs. Yet, margins could swell due to past restructuring efforts. Looking at year-on-year comparisons, Tech Mahindra might face a steeper decline in both revenue and net profit, with a 6 percent and 54 percent fall respectively. Brokerages are placing conjectural estimates for year-on-year declines, with deal wins potentially remaining tepid and overall outlooks not as favorable compared to previous years.
As earnings day approaches, critical aspects to note will include management’s commentary on margin recovery timelines, operational improvement strategies, the effect of recent organization restructures leading to several high-level exits, new strategic initiatives by CEO Mohit Joshi, and updates on total contract value wins and 5G-related developments. The focus remains not only on the numbers but also on the strategic direction under the new leadership as well as updates on capital allocation and operational roadmaps.
Despite the mixed financial outlook, with pressures on revenue but a more positive profit trajectory, Tech Mahindra’s restructuring efforts and strategic shifts under CEO Mohit Joshi are key to navigating these challenging market conditions, especially within the pivotal telecom segment. As investors and market watchers look ahead, the company’s approach to turnover and margin performance in FY24 and beyond will undoubtedly be under scrutiny.