Tech Mahindra Q4 Results Review - Long Way To Go: Prabhudas Lilladher

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Prabhudas Lilladher Report

Tech Mahindra Ltd. reported revenue of $1.55 billion, down 0.8% QoQ in constant currency and down 1.6% in reported terms, below consensus of 1.4% decline. The decline was led by the communication vertical (-2.7% QoQ) along with the continued initiatives to de-risk its client mix.

Ex-comm, the enterprise business also was muted, down 1% QoQ, led by manufacturing and retail, down 1% and 10%, respectively. The Ebit margin saw an improvement of 40 bps QoQ, in line with consensus.

Despite the weakness in topline growth, the deal total contract reported was strong at $500 million (+31% QoQ), aided by two large $100 million deals each in Q4.

The management laid out three-year strategic plan to drive sustainable and predictable growth over FY25-FY27. The pillar on growth strategy is to drive balanced portfolio with reduced dependency on the communications business while drawing more attention to high growth service lines and scale potential top accounts.

The management indicated that it is a long-drawn approach and would require investments at the initial phase. It expects FY25 to be the year of turnaround followed by stable performance in FY26, while actual benefits are only to be achieved in FY27.

The management was confident to drive profitable growth for all three years and achieve 15% operating margin in FY27, while it expects $250 million average benefits to be achieved in each of the individual years.

We believe, the near-term macro uncertainties would provide limited headroom for growth and margin recovery until FY25.

More importantly, the company’s inherent weakness and seasonality of its portfolio businesses would make it even more harder for the milestone to be achieved within the given timeframe.

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Prabhudas Lilladher Tech Mahindra Q4FY24 Results Review.pdf

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Also Read: Tech Mahindra Q4 Review - New CEO Lays Ambitious Plans To Achieve Higher Growth, 15% OPM: Dolat Capital

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