Tech Mahindra likely to be the worst-hit of all the Indian IT services giants in first quarter

• Tech Mahindra is set to post its first-quarter earnings after market hours on July 27.
  
• Analysts believe, among the top IT services companies, Tech Mahindra may be the worst hit due to its exposure to the BPO business.
  
• Tech Mahindra’s revenue in Q1FY21 could see a quarterly drop of nearly 9%.
  

The April through to June was expected to be a washout for the IT companies as clients turned cautious on discretionary spending amidst the pandemic. Among them, Tech Mahindra is likely to be the worst-hit, according to analysts. A lot will depend on how its BPO business has fared, and what plans Tech Mahindra has for 5G implementation going ahead.



“Tech Mahindra in our coverage universe will likely see the biggest QoQ drop in revenue. This is despite the addition of some inorganic revenues in 1Q,” said Nirmal Bang’s preview.

Dependence on communications vertical

The company’s communication business has been a revenue driver during the past few quarters accounting for more than 40% of its overall income. Much of the quarterly decline expected from the Indian IT services company is with respect to how severely that part of the business has been hit.


Pricing pressure from clients, project ramp downs, and client-specific challenges in BPO are among the minefield that Tech Mahindra will have to navigate this quarter, according to ICICI securities. However, in the long term, the brokerage believes Tech Mahindra’s leadership in the communication vertical will make it a key beneficiary of vendor consolidation in the segment.

“A key thing to monitor would be the receivables situation. Among the companies we cover, Tech Mahindra has the worst numbers. We need to see whether that has undergone further deterioration,” said Nirmal Bang.

Tech Mahindra’s stock price has risen 27% since April to close at ₹652.75 during the last trading session. In comparison, NIFTY IT rose by around 116% during the same time period.


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