Tech Mahindra Q1 Preview: Will the IT company surprise investors with its earnings?

Tech Mahindra is expected to report modest revenue growth for the June quarter, with telecom remaining the biggest growth driver as large deal ramp-ups continue. Revenue is expected to rise about 1% sequentially in constant currency terms, according to estimates from five brokerages. Analysts also expect operating margins to improve as the company continues its cost optimisation programme.

Investor attention will be on management's commentary on the sustainability of telecom growth, demand in banking and financial services, artificial intelligence strategy and the company's progress towards its FY27 margin target.

Telecom to drive growth

Most brokerages expect Tech Mahindra's June-quarter revenue to grow around 1% quarter-on-quarter in constant currency.

Nuvama expects constant currency revenue growth of 1.2%, or 0.8% in US dollar terms, led by telecom.

Nomura expects 1% growth, supported by both the communications and enterprise businesses.

Motilal Oswal also forecasts 1% constant currency growth, driven by continued ramp-up of large telecom contracts. It expects banking and financial services to remain healthy, while the high-tech segment may remain weak because of cautious discretionary spending.

Systematix estimates 1.1% growth, while Kotak Institutional Equities expects 1% growth led by telecom, partly offset by weakness in the high-tech vertical.

Also Read: Wipro Q1 Preview: Under pressure from AI, what can investors expect from earnings?

Margins likely to improve
Brokerages broadly expect Tech Mahindra's operating margin to expand during the quarter.

Nuvama and Nomura expect margins to improve by about 30 basis points, supported by ongoing cost optimisation initiatives.

Motilal Oswal expects a larger improvement of around 50 basis points to about 14.3%, helped by delivery efficiencies, better gross margins and benefits from Project Fortius.

Systematix also expects a 30-basis-point improvement, although higher wage costs arising from changes in labour code provisions may partly offset the gains.

Kotak forecasts a 40-basis-point expansion even after absorbing about a 20-basis-point impact from compensation realignment linked to labour code changes.

Most analysts expect the company to reiterate its FY27 EBIT margin guidance of about 15%.

Large deals and BFSI in focus
Analysts expect net new deal wins to remain healthy despite moderating from recent quarters. Nomura expects deal wins of around $800 million.

Systematix expects total contract value between $800 million and $1 billion, while Kotak estimates new deal wins in the range of $900 million to $1 billion.

Brokerages will closely watch whether these large deals convert into revenue over the coming quarters.

The banking and financial services business will also remain under focus after underperforming in recent quarters.

Manufacturing is expected to remain stable despite weakness in the US automotive market, while the high-tech vertical is likely to remain soft because of lower discretionary spending.

AI strategy and telecom outlook key monitorables
Analysts expect management commentary on artificial intelligence to be closely watched, with investors looking for greater clarity on the company's AI strategy and competitive positioning.

Kotak said Tech Mahindra's AI narrative has been less prominent than some of its larger peers and investors would seek more details on initiatives to strengthen that positioning.

Brokerages will also watch the long-term outlook for the communications business after the recent recovery driven by two large telecom deals.

Other key monitorables include the pace of margin expansion, demand trends across verticals and whether the company prioritises further profitability improvements or reinvests to accelerate revenue growth.

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