Tech Mahindra Q2 preview: Analysts see up to 14.7% YoY fall in net profit

Deal pipeline in telecommunication & enterprise segment, opportunities in 5G, are some of the key monitorables.

Tech Mahindra, the Pune-headquartered information technology (IT) services company, is expected to post up to 2.3 per cent quarter-on-quarter (QoQ) revenue growth in constant currency for the quarter ended September 30 (Q2FY21). Further, analysts expect up to 250 basis points (bps) increase in earnings before interest, and tax (Ebit) margin on a sequential basis owing to lower sub-contracting cost, easing of supply-side pressure, and cost rationalisation. The company is slated to announce its Q2 numbers on Friday, October 23.

Deal pipeline in telecommunication & enterprise segment, opportunities in 5G, margin improvement in portfolio companies, long term growth opportunity, attrition level, and increment /promotion cycle will be the key things to watch out for.

At the bourses, shares of Tech Mahindra zoomed around 45 per cent during the July-September period while the S&P BSE Information Technology index rose over 34 per cent. The benchmark S&P BSE Sensex, on the other hand, gained 9 per cent during the period, BSE data show.

Here's a look at what top brokerages expect from Tech Mahindra's Q2 numbers.

Edelweiss Securities

The brokerage expects Tech Mahindra to post revenue growth of 2.3 per cent QoQ in constant currency terms and 3.7 per cent in US dollar terms at $1,253 million. On a year-on-year (YoY) basis, however, US dollar revenue will fall by 2.7 per cent.

In rupee terms, revenue is seen at Rs 9,306.9 crore, up 2.2 per cent QoQ and 2.6 per cent YoY. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) is seen at Rs 1,588.3 crore, up 22.1 per cent QoQ and 5.8 per cent YoY. Ebitda margin is seen at 17.1 per cent against 14.3 per cent in the previous quarter while Ebit margin is estimated to expand by 250 bps QoQ to 12.6 per cent enabled by better cost control and efficient execution. Adjusted net profit is expected to come in at Rs 981.4 crore, up 0.9 per cent QoQ and down 12.7 per cent YoY.

"We would continue to monitor the 5G related capex," the brokerage said.

ICICI Securities

In US dollar terms, revenue growth is seen at $1,237.7 million, up 2.5 per cent QoQ led by improvement in BPS revenues, project ramp-ups, and absence of seasonality. However, due to rupee appreciation, rupee revenues are expected to grow 1.1 per cent QoQ at Rs 9,208.4 crore. On a YoY basis, the numbers are expected to rise by 1.5 per cent. EBITDA is pegged at Rs 1,454.9 crore, down 3.1 per cent YoY and up 11.9 per cent QoQ while PAT is seen at Rs 1,072.3 crore, down 4.6 per cent YoY and up 10.3 per cent QoQ. EBITDA margins are expected to improve nearly 150 bps QoQ led by improvement in utilisation and lower sub-contracting cost.

Centrum Broking

The brokerage expects Tech M to deliver constant currency revenue growth of 1.6 per cent QoQ. Cross currency would be tailwind of 140bps for the quarter. Hence, reported US dollar revenues would grow by 3 per cent QoQ to $1,244 million. "We expect EBIT margins for 2QFY21 at 11.4 per cent, up 135bps QoQ. While Tech M has shown strong margin performance in 1QFY21, company is likely to show this continued margin expansion in 2QFY21 as well," the brokerage said in a result preview note.

Net profit is seen at Rs 958.2 crore, down 1.5 per cent QoQ and 14.7 per cent YoY.