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Tech Mahindra Q4 preview: What analysts expect; key things to watch out for

IT major Tech Mahindra will announce its March-quarter numbers on Thursday (April 30)
When information technology (IT) major Tech Mahindra announces its results for the March quarter (Q4FY20) on Thursday (April 30), among key developments to watch out for will be its update on the execution of large deals it won in the past four-five months, and a timeline of progress on its 5G rollout in the midst of the Covid-19 crisis.

So far, IT companies have reported mixed sets of numbers for the quarter ended March 2020. Mindtree posted strong numbers — and its highest-ever deal wins, at $393 million — and its management's commentary on deal pipeline and room for margin expansion was more optimistic than those of its bigger peers.

Here's a look at what analysts expect from Tech Mahindra's March-quarter result announcement:

ICICI Securities

The brokerage expects the company's US dollar revenues to grow 1 per cent quarter-on-quarter (QoQ) to $1,367 million, mainly driven by the partial contribution of its Born group acquisition, the AT&T deal, and the Jackson National Life Insurance deal. Rupee revenues may grow 2.6 per cent QoQ and 11.4 per cent year-on-year (YoY) to Rs 9,903 crore. Earnings before interest, tax, depreciation and amortisation (Ebitda) is seen at Rs 1,554.8 crore, down 0.5 per cent QoQ and 5.1 per cent YoY. Profit after tax (PAT) is estimated at Rs 1,040.4 crore, down 8.1 per cent YoY and 9.2 per cent QoQ. "Ebitda margins could decline 50 bps QoQ to 15.7 per cent on account of the continuity of large deal transition cost in the quarter partially offset by rupee depreciation," the brokerage said.

Kotak Securities

It expects a revenue decline, despite the contribution of $10 million of incremental revenues from Born acquisition ($15 mn quarterly revenue run rate) and Prudential deal ramp-up due to the revenue decline in Italy-based Pininfarina, shutdown in Wuhan impacting China revenues, lower revenues from AT&T contract, and the cancellation of a few network ramp programmes. After strong September and December 2019 quarters, the brokerage expects new order wins to move back to $300-400 million range.

It expects Ebitda to slip 7.4 per cent YoY and 2.9 per cent QoQ to Rs 1,517.4 crore. PAT is expected to decline 21.9 per cent YoY and 22.8 per cent QoQ to Rs 884.0 crore. A steep decline in profit is expected due to forex losses versus forex gains of Rs 1,430 crore in December 2019 quarter and a decline in margins.

Investor focus: A strategy to improve work from home (WFH) coverage for BPO work, measures taken to ensure that profitability is higher than FY2020E levels, impact on 5G rollouts from the recent chain of events, demand outlook from the impacted auto vertical, a large deal pipeline, and drivers of revenue in FY2021E.

Dolat Capital

Analysts at this brokerage firm expect a decline of about 1.2 per cent in revenues (constant currency, or CC, terms) QoQ, even after incorporating inorganic contribution (cross-currency impact of 40 basis points for the quarter). The revenue decline is due to a ramp-down in the AT&T contract and loss of billing due to lockdown impact.

It expects sales (revenue) in rupee terms to rise 7.8 per cent QoQ to Rs 9,586.1 crore and Ebit at Rs 1,150.3 crore (down 15.9 per cent). Ebit margin is expected to drop 339 bps to 12 per cent, while PAT (profit ater tax) or net profit is seen at Rs 1,046.8 crore, down 7.6 per cent QoQ.


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