Shares of Tech Mahindra (TechM) and L&T Technology Services (LTTS) experienced significant drops of up to 6% in Wednesday's trading, just hours before their anticipated fourth-quarter earnings announcements. The downturn was largely attributed to a broader sell-off in the IT sector, triggered by a disappointing Q4 performance and cautious FY27 revenue guidance from industry peer HCL Technologies.
HCL Tech's Weak Guidance Fuels IT Sector Sell-off
HCL Technologies' Q4 results, which missed consensus expectations, served as a catalyst for the market's reaction. The Noida-based firm reported a 3.3% quarter-on-quarter (QoQ) decline in revenue to $3,682 million. Its net new deal wins also saw a substantial 35% year-on-year (YoY) decrease to $1.9 billion, while the EBIT margin of 16.5% fell below the anticipated 17.6%.
Following this news, the BSE IT index was down 4.33%, reflecting investor concerns across the technology services landscape. TechM shares declined 5.61% to Rs 1,416.10, and LTTS shares fell 2.9% to Rs 3,537.10.
Analyst Expectations for Tech Mahindra's Q4
Brokerage firm Equirus Securities projects Tech Mahindra to report a 28.4% YoY increase in recurring profit, reaching Rs 1,498 crore, supported by a 12.7% YoY jump in sales to Rs 15,087 crore. Equirus anticipates a 0.6% sequential growth in constant currency (CC) revenue, primarily driven by the ramp-up of previously secured deals and seasonal strength in its Comviva segment. EBIT margins are expected to improve by 66 basis points (bps) QoQ, largely due to ongoing cost optimization efforts.
Nomura India, another prominent brokerage, forecasts TechM's Q4 profit to surge by 49.9% YoY to Rs 1,749 crore, with sales growing 10.5% YoY to Rs 14,789 crore. Nomura expects margins to expand by 300 bps to 13.5%, with CC revenues remaining flat QoQ across both communications and enterprise verticals. Net new deal wins are estimated at $1 billion.
LTTS Q4 Outlook: Profit Growth Despite Flat Sales
For L&T Technology Services, Equirus Securities expects an 8.8% YoY rise in net profit to Rs 338.50 crore, even with projected flat sales growth at Rs 2,986 crore. Dollar revenue is seen declining by 1% QoQ and 0.5% in CC terms, attributed to ongoing business restructuring aimed at improving profitability. EBIT margins are predicted to improve by 21 bps QoQ, benefiting from forex gains and an improved business mix, partially offset by wage hikes.
Nomura India projects LTTS profit to increase by 18.7% YoY to Rs 369.30 crore on flat sales of Rs 2,994 crore. The firm anticipates flat QoQ CC revenue as client pruning and restructuring efforts continue. EBIT margin is expected to rise by 20 bps QoQ, following the conclusion of client support in Q2.
Key Factors to Watch in Earnings Commentary
Investors will be closely monitoring several aspects in the upcoming earnings calls. For Tech Mahindra, particular attention will be paid to commentary regarding demand, performance in banking and telecom verticals, the volume of large deal wins, progress on margin improvement, the impact of AI, and the ongoing Middle East war on business. Additionally, the company's revenue growth trajectory targets for FY27 will be crucial.
For LTTS, key areas of focus include demand commentary, large deal wins, the trajectory of margin improvement, the impact of AI and the West Asia conflict on business, updates on its SWC divestment, and the overall outlook on client discretionary spending.