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HDFC Securities Institutional Equities
Tech Mahindra Ltd. delivered in-line Q2 FY23 performance, both on revenue and margin, with revenue growth of 2.9% QoQ constant currency and Ebitm expansion of 40 basis points QoQ.
Deal closures were soft due to the spillover of select deals into Q3, but importantly the outlook of $700 million to $1 billion quarterly net new total contract value was maintained.
Key positives for Tech Mahindra were sequential improvement in free cash flow generation, operating performance (mitigating the wage hike impact) and line of sight for further improvement in margins, led by account pruning (banking, financial services and insurance and rest of world impact in Q2), pricing, utilisation and sub-con optimisation (lower in Q2).
Growth visibility for Tech Mahindra is premised on pipeline commentary, improved services portfolio (design, engineering and consulting) plus acquisition synergies, and 5G-related spend and deals in media and entertainment driving the company's communications, media and entertainment vertical.
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