Tech Mahindra trades flat ahead of Q4 nos; here is what to expect

Nirmal Bang Securities expects Tech Mahindra (TML) to deliver revenue growth of 1.0 per cent QoQ in constant currency terms, which will be impacted by the general demand slowdown.

Analysts at a brokerage forecast a net new TCV of US$600 million for Tech Mahindra, down 40.7 per cent YoY. Image credit: www.techmahindra.com

Most technology stocks were listless in the morning trade on BSE on April 27, 2023. Both Wipro and Tech Mahindra traded flat with a negative bias ahead of their March quarter numbers (Q4FY23) due later in the day. While no firecrackers are expected this time from the companies, Wipro's announcement around share buyback is keenly awaited.

At the time of writing this news, Wipro shares were trading 0.24 per cent lower at Rs 373.60 on the BSE while Tech Mahindra quoted at Rs 994.75, down 0.15 per cent. In comparison, the benchmark S&P BSE Sensex stood at 60,403.83, up 0.17 per cent.

Nirmal Bang Securities expects Tech Mahindra (TML) to deliver revenue growth of 1.0 per cent QoQ in constant currency terms, which will be impacted by the general demand slowdown. Cross-currency tailwind will be nearly 180bps. The brokerage notes that growth will be lower on account of some weakness seen in the top five client accounts and the impact of furloughs, which TML had stated would continue for part of 4QFY23 as well.

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"In 4QFY23, we expect the TCV number to be at the lower end of the US$700mn-1,000mn range, which it has seen in the last few quarters. We expect the EBIT margin to expand by 80bps QoQ largely on the back of operational efficiencies, improved utilisation and lower sub-con costs, which are still higher compared to peers," the brokerage said in its earnings preview note.

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It added that at Tech Mahindra, there was a headcount reduction of 6,844 employees in 3QFY23 and it expects 4QFY23 net hiring to be negative as well to improve utilisation. "Would watch out for any top-level attrition now that Mohit Joshi has been appointed as the CEO designate," analysts at the brokerage wrote.

Kotak Securities notes that weak macro and slow decision-making will likely feed into muted deal wins. It forecasts a net new TCV of US$600 mn, down 40.7 per cent on a YoY comparison. Deal wins TCV will likely decline 11.2 per cent on a YoY TTM basis, the brokerage notes.

"We expect a revenue decline of 0.6 per cent on a sequential basis in constant currency terms. The revenue decline in top telecom accounts, slowdown in hi-tech and muted growth in BPO following the seasonally strong quarter will offset tailwinds from a seasonally strong quarter in Comviva business," the brokerage said in its earnings preview note.

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