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Analysts see 16-23% YoY PAT growth, margin contraction for TechM in Q1

Topics Tech Mahindra

Tech Mahindra
A near 1 per cent contribution from acquisitions and ramp-up in deals won in prior quarters are likely to modestly drive the June quarter revenue growth for information technology (IT) major Tech Mahindra (TechM), as per analysts. Growth would be mainly contributed by Enterprise segment while Communications business is expected to be weak during the quarter under review.

Deal transition costs and the impact of wage hikes will drive the Ebit (earnings before interest and tax) margins sharply lower, analysts opined. New deal TCV should be strong driven by significant deal closures in Q1, Jefferies said.

Overall, brokerages project a 16-23 per cent year-on-year (YoY) rise in the June quarter profit after tax (PAT) and a 10 per cent jump in revenue (rupee terms). Deal TCVs and pipeline, margins levers going forward, broad outlook on growth/margins for FY22 and 5G commentary are among key monitorables.

Here's what key brokerages are projecting for TechM's Q1 earnings:

Jefferies
We estimate TechM to deliver revenue growth of 2.1 per cent quarter-on-quarter (QoQ) in constant currency (CC) terms, due to seasonal weakness at Comviva, telecommunications subsidiary of TechM. The revenue (rupee terms) projection for Jefferies stands at Rs 10,024 crore, up 10.1 per cent YoY and 3 per cent QoQ. The figure stood at Rs 9,106.3 crore in the June quarter last year and Rs 9,729.9 crore in the March 2021 quarter.

The brokerage expects the margin to contract sharply by 170 bps QoQ to 14.7 per cent from 16.5 per cent, impacted by salary hikes and deal transition costs. On a YoY basis, it could expand by 468 bps as against 10.1 per cent posted in the corresponding quarter a year ago.

It pegs Q1FY22 PAT at Rs 1,181 crore, up 21.5 per cent YoY, compared with Rs 972.3 crore in the same quarter last fiscal. Sequentially, the figure can rise 9.2 per cent from Rs 1,081.5 crore.

The focus will be on the outlook for communication vertical, 5G deals and timelines, margin outlook, deal momentum and hiring/attrition, Jefferies said.

Nomura
The brokerage expects 2.3 per cent QoQ CC and 2.5 per cent QoQ dollar revenue growth. "Growth to be led by the Enterprise business, while growth in Communications will be soft due to seasonal weakness in Comviva (typically June quarter sees an impact of $8-10 million in revenues," it said in results note.

It pegs dollar revenue for the quarter ended June 2021 at $1,362 million compared with  $1,208 million in the corresponding quarter a year ago and $1,330 million in the preceding quarter. Revenue in rupee terms is likely to grow 10.1 per cent YoY and 3.1 per cent QoQ to Rs 10,027.1 crore as per the brokerage's projections. The profit after tax is estimated at Rs 1,130.3 crore, up 16.2 per cent YoY.

We expect a QoQ EBIT margin dip of ~200bp to 14.5 per cent due to a full quarter impact of wage hikes, seasonal weakness due to Comviva, lower utilisation rates and rise in sub-contractor expenses and visa costs, the brokerage added. It further expects TechM to reiterate revenue growth guidance of 8-10 per cent, including 6-8 per cent in Telecom (excluding 5G) and 8-10 per cent in Enterprise for FY22 and EBIT margin guidance of ~15 per cent for FY22.

ICICI Securities
This brokerage eyes a 17.8 per cent YoY and 5.9 per cent QoQ rise in Q1 PAT at Rs 1,145.2 crore while the revenue is estimated to be at Rs 10,064.8 crore, a growth of 10.5 per cent on a yearly basis and 3.4 per cent, sequentially.

We expect the EBIT margin to decline ~150 bps QoQ to 14.5 per cent due to wage hike and PAT is expected to increase due to lower tax and higher other income, the brokerage noted. Deal pipeline in telecommunication & enterprise segment, ramp-up of large deals, opportunities in 5G, margin improvement in portfolio companies and long term growth opportunity, it said, are key areas of investor interest.

Phillip Capital
In line with other brokerages, Phillip Capital too eyes a ~ 10 per cent jump in rupee revenue at Rs 10,051.3 crore. "We expect modest dollar revenue growth of +2.6 per cent and positive cross-currency impact of 20 bps. CC revenue growth of +2.4 per cent. Enterprise to do better than communications as it is seasonally weak in Q1, led by Comviva," it said.

Margins are expected to decline by -210 bps QoQ to 14.3 per cent, it said. The research and broking house projects Q1 PAT at Rs 1,195.2 crore, the highest among other brokerages, implying an upside of 23 per cent YoY and 10.5 per cent QoQ. 




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