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Motilal Oswal Report
Tech Mahindra Ltd. reported a revenue of $1.63 billion in Q2 FY23, up 2.9% QoQ in constant currency terms versus our estimate of 2% QoQ. Reported growth was muted at 0.3% QoQ in Q2 FY23, led by business process outsourcing (up 3.6% QoQ), while IT services were flat QoQ.
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Ebit margin rose 40 bps QoQ to 11.4% (in line), despite wage hikes.
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Revenue growth in Q2 FY23 was impacted by 100 bps (annual run-rate of $60 million) due to Tech Mahindra's account pruning program to exit low margin and non-strategic accounts.
The management indicated a total annualized impact of $100-120 million in FY23, implying another 100 bps hit over H2. Moreover, higher furloughs in Q3 FY23 may further impact revenue.
We expect Tech Mahindra to deliver a U.S. dollar revenue growth of 9.7% in FY23 (including ~400 bps from the inorganic route), which is among the weakest in our coverage universe. It should see continued pressure in FY24 as its focus on margin may be at the cost of growth.
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