Tech Mahindra Q4 Preview: CC revenue to drop even as profit may rise 65% YoY

Tech Mahindra's Q4 profit is expected to surge YoY, but revenue growth will likely be muted sequentially in constant currency. Reversal of furloughs and Comviva seasonality benefits are offset by hi-tech headwinds and low-margin deal closures. Analysts anticipate improved deal wins at higher margins, with focus on client budgets and GenAI impact.
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Here's what analysts expect from Tech Mahindra Q4:
HSBC
ICICI Securities
For Tech Mahindra , fourth quarter profit growth will be strong but the sequential revenue in constant currency terms will be quite muted, according to estimates from various brokerages. For instance, Nuvama is pricing in a -0.7% QoQ CC and -1.5% QoQ in USD growth.The company will reap the benefit of reversal of furloughs and Comviva seasonality, but they will be offset by headwinds in hi-tech and few low-margin deal closures.Net profit in the January-March period is likely to jump 65% year-on-year (YoY), according to an average estimate of six brokerages. Revenue, meanwhile, is seen rising 4% YoY.Analysts forecast net new deal wins of $750 million, an improvement quarter-on-quarter and a material increase YoY. More importantly, new deals are likely won at a higher margin.Investors await management commentary on client budgets for CY25, any early success on gaining entry into large accounts in BFSI, deal pipeline and pace of conversion of pipeline to TCV, updates on further restructuring of subsidiaries and rationalization of tail accounts and impact on BPO business due to GenAI.Growth from Banking and Manufacturing is expected to be more than offset by the weakness in Hi-Tech/BPS and continued muted performance at Telcos. We expect revenues to decline by 0-1% QoQ in cc terms; we expect more weakness in non-telecom revenues.Margins are expected to be flat sequentially as wage hike impact is offset by the INR depreciation. Key focus areas: Commentary on client tech spending behaviour in communications, and scale-up progress at other divisions, particularly BFSI and manufacturing.We build -0.4% QoQ CC growth as tailwinds from positive seasonality in Comviva and reversal of furloughs would be offset by headwinds in BPS services in Hitech client and rationalization of a couple of low margin Healthcare projects. Decision making has slowed amidst new policy changes and tariffs in USWe expect EBIT margin to be flat QoQ as headwind from wage hike would be offset by cost savings from project Fortius.We expect TechM to report -0.7% cc growth, 50bps currency headwind should result in a -1.2% dollar revenue. We expect telecom and enterprise segment to decline -0.5%/-1.5% QoQ; Comviva seasonality to aide Telecom Expect 10bps sequential decline in EBIT margin as Tech Mahindra absorbs wage hike through Project Fortius gains; expect deal wins in $600-800 million: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)

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