Indian IT and Steel Giants Face Mixed Q3 Results: Tech Mahindra Sees Modest Growth, Tata Steel Navigates European Hurdles

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Tech Mahindra Anticipates Modest Q3 Performance Amid Revenue Decline

Tech Mahindra, the mid-cap IT firm, is expected to deliver a modest performance in the third quarter of FY24, marked by a potential decline in overall revenue and constant currency revenues. Analysts predict this subdued performance to be driven by weakness in the communication and enterprise verticals, coupled with the traditionally slower third quarter.

Brokerage firm Jefferies forecasts a 1.6% decline in Tech Mahindra’s Q3 revenues in constant currency, primarily due to furloughs and ongoing portfolio optimization within the communication vertical. Motilal Oswal echoes this sentiment, anticipating a 7% year-on-year decline in rupee terms, following a similar dip in Q2. The brokerage firm attributes this decline to seasonality impacting the CME and enterprise segments, further predicting a 1.1% q-o-q drop in constant currency revenue for Q3FY24.

Adjusted PAT, as per Motilal Oswal, may witness a significant decline of 39.3% year-on-year and 19.5% quarter-on-quarter. The brokerage firm also expects the deal TCV (total contract value) to range between $300-500 million in Q3FY24.

Tata Steel Q3 Net Profit Likely Dented by European Challenges

Tata Steel, the leading steel producer, is anticipated to experience a sequential decline in net profit for the December 2023 quarter, primarily due to headwinds in its European operations. Analysts predict a consolidated net profit of Rs 702.70 crore, reflecting a 16% decline from the previous quarter. This follows a loss of around Rs 2384 crore in the December 2022 quarter.

Despite a 1.3% on-quarter increase in consolidated revenue for the quarter, driven by higher sales realization in Indian operations and increased sales volume, the overall picture remains cautious. This growth is partially offset by lower sales volume and realization in Europe, leading to a potential 1.2% year-on-year decline in revenue.

Analysts foresee a 3.5% QoQ decline in EBITDA, attributed to reduced EBITDA per tonne in India due to higher coking coal costs. This impact is expected to outweigh the gains from increased realization and sales volume in India. In Europe, weaker EBITDA per tonne is anticipated due to lower sales volume and realization, partially offset by reduced coking coal costs. Additionally, analysts predict a further sequential drop in EBITDA per tonne in Europe due to lower sales volume and operating leverage.

Contrasting Performances: Domestic Strength vs. European Challenges

While Tata Steel’s Indian operations are expected to witness a 2% growth in standalone volumes for the third quarter, reaching 4.9 million tonnes, its European segment paints a different picture. Analysts anticipate a decline in sales volume in Europe, with the Netherlands experiencing a drop of 5% QoQ and 8% YoY due to blast furnace relining. UK sales volume is also expected to decline by 5% QoQ and 14% YoY, reflecting lower demand.

Despite the challenges in Europe, analysts like Yes Securities remain cautiously optimistic about Tata Steel’s overall performance. They predict margin expansion at the consolidated level due to stable steel prices and a slight improvement on the coking coal front.

Key Takeaways and Looking Ahead

The upcoming Q3 results for Tech Mahindra and Tata Steel highlight the contrasting fortunes of Indian IT and steel companies. While Tech Mahindra navigates a subdued domestic market and portfolio adjustments, Tata Steel grapples with headwinds in its European operations.

For Tech Mahindra, investors will be keenly watching the impact of furloughs and portfolio optimization on revenue and profitability. The company’s ability to secure new deals and navigate the seasonality of the third quarter will also be crucial factors.

Also Read: Axis Bank Q3 FY24: Steady Growth, NIM Expansion, and Healthy Asset Quality

Tata Steel’s performance will hinge on its ability to mitigate the challenges in Europe and leverage the strength of its domestic operations. The company’s progress in union talks and its overall strategic direction will also be key areas of focus for investors.

As both companies prepare to release their Q3 results, the market awaits further clarity on their performance and future outlook. The coming days will reveal how effectively these Indian giants have navigated the complexities of the current economic climate and positioned themselves for future growth.