Tech Mahindra Q4 Results Review - Weak Margins Due To Higher Investments: ICICI Securities

Since mid-Feb 2023 Tech Mahindra has significantly outperformed NIFTY IT (down 10%) amidst high expectations from the new CEO.

<div class="paragraphs"><p>Tech Mahindra Ltd.'s signage at company's Visakhapatnam office. (Source: Company official webpage.)</p></div>
Tech Mahindra Ltd.'s signage at company's Visakhapatnam office. (Source: Company official webpage.)

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ICICI Securities Report

Tech Mahindra Ltd.’s Q4 FY23 revenue grew 0.3% QoQ constant currency, flat QoQ in USD terms, a tad lower than our and consensus estimate (our eatimate: 0.5% QoQ USD, BBG consensus: 0.2% QoQ USD).

Revenue growth was led by communication (0.7% QoQ USD), manufacturing (1.5% QoQ USD) and banking, financial services (0.3% QoQ USD). Tech was flat QoQ and retail declined 10.4% QoQ in USD terms. Top-five client revenue further declined by 5% QoQ and 21% YoY.

Management mentioned this segment has largely bottomed out, but it did not mention the revival journey for top five accounts. Ebit margin came in at 11.2%, down 80 bps QoQ, below our and consensus estimate of 12.1% and 12.3%, respectively. Due to this miss, Ebit was 8% below our estimate.

Tech Mahindra expects to improve margin led by increase in offshoring, pyramid rationalisation, divestment of low profitable business and lower sub-con costs.

Wage hikes are expected to be staggered across the year for FY24, as per the management. Tech Mahindra realised 1% price increase in FY23, but expects limited price rise in FY24 and thus, would rely on last year (FY23) price hikes for reviving margin trajectory.

Click on the attachment to read the full report:

ICICI Securities Tech Mahindra Q4FY23 Results.pdf
Tech Mahindra Q4 Results Review - Demand To Remain Subdued In H1 FY24: IDBI Capital


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