Research Icon:- Tech Mahindra Q1 profit may fall over 15%, dollar revenue degrowth could be 1%
Kotak expects sequential EBIT margin decline of 250 bps contributed by –
(1) 100 bps impact from wage revision,
(2) higher visa applications,
(3) Rupee appreciation and (4) seasonal impact of lower Comviva
revenues.
Software services
company Tech Mahindra is expected to report more than
15 percent sequential decline in profitability and one percent fall QoQ in
dollar revenue for the quarter ended June 2019, according to brokerages.The
delay in deal ramp up in enterprise business, the slowdown in telecom growth
and seasonality in Comviva business may hit topline growth.
"We expect dollar revenues to decline 1 percent
QoQ to $1,255 million on the back of a delay in the deal ramp up in the
enterprise and Comviva seasonality. Rupee revenues may de-grow 1.9
percent QoQ to Rs 8,725 crore," said ICICI direct which expects profit
to fall 18.2 percent sequentially.Prabhudas Lilladher also sees dollar revenue
falling 1 percent QoQ and constant currency revenue declining 0.7 percent QoQ.
"We have built a revenue decline of 3.5 percent QoQ in dollar terms in the
communication segment due to Comviva seasonality and flat growth 0.7 percent
QoQ in dollar terms in enterprise vertical."According to Lilladher, profit
is likely to fall 17 percent QoQ.At operating level, Tech Mahindra's earnings
before interest and tax margin may contract in triple-digit sequentially due to
a wage hike, visa cost and currency headwind.
Kotak expects sequential EBIT margin decline of 250
bps contributed by -- (1) 100 bps impact from wage revision, (2) higher visa
applications, (3) Rupee appreciation and (4) seasonal impact of lower Comviva
revenues.The brokerage further expects robust new deal signings with good
spread across enterprise and telecom segments.Key issues to watch out for would
be commentary on 5G and related impact on company's communications vertical, outlook
for BFSI, health of enterprise business especially in the manufacturing
vertical where the company has high exposure to the auto sector, deal wins on
the back of two quarters of above-average total contract value, and proportion
of wins in the enterprise segment.
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