Can Tech Mahindra overcome its Q2 decline this Q3?
Analysts at Kotak Institutional Equities said, We expect cross currency (c/c) revenue growth of 3.8% and cross currency headwind of 120 basis points. Acquisitions (Target Group) will contribute incremental $6 million for the quarter; organic revenue growth stands at 3.2% in c/c.
Tech Mahindra will announce its third quarter ended December 31, 2016 result on Monday. In the previous quarter (Q2FY17), the company reported 19.3% year-on-year (yoy) drop in its net profit.
In Q2,Tech Mahindra reported net of Rs 643 crore, a decline of 19.3% compared to Rs 796.5 crore witnessed in the similar period of the previous year.
Q2 was impacted by 120 basis point by one-off restructuring costs. Headwinds for the quarter were - (1) seasonal furloughs and (2) transition costs in large deals in the enterprise segment.
What's in store for Q3?
Analysts at Kotak Institutional Equities said, “We expect cross currency (c/c) revenue growth of 3.8% and cross currency headwind of 120 basis points. Acquisitions (Target Group) will contribute incremental $6 million for the quarter; organic revenue growth stands at 3.2% in c/c.”
They feel revenue growth will be tapped by (1) ramp up of deals in the enterprise segment, (2) moderate ramp up in the telecom vertical, and (3) slightly higher revenues from Comviva (seasonal).
Going ahead, EBITDA (operating profit) margin performance will disappoint with 122 basis points (bps) decline on year-on-year (yoy) basis. On sequential basis EBITDA margin will improve by modest 80 bps.
Kotak added, “We expect robust TCV of $300 million led by the enterprise segment. Tech Mahindra is making steady progress in deal signings”
Overall Kotak estimates net profit of Tech Mahindra at Rs 728.4 crore down by 4.1% yoy and revenue at Rs 7,421.5 crore up by 10.8%.
As per Kotak, investors will focus on - (1) pipeline in telecom and deal wins in Enterprise segment, (2) turnaround strategy for LCC, (3) roadmap for improvement in margins, productivity and automation, and (4) growth outlook for top telecom accounts especially its top client in view of recent M&A activity involving it (AT&T- Time Warner merger).
In Q3, Infosys and TCS reported consolidated net profit of Rs 3708 crore and Rs 6778 crore registering growth of 7% and 10.9% respectively.
Only Wipro reported drop of 6% in consolidated net profit at Rs 2237.1 crore in Q3.
At 12.14 am, shares of Tech Mahindra were trading at Rs 468.60 per share, higher by Rs 1.85 or 0.40%.
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