Tech Mahindra extends gains post June quarter results; stock hits new high

In the past one month, Tech Mahindra has outperformed the market by surging 25 per cent, as compared to 4.4 per cent rise in the S&P BSE Sensex

Shares of Tech Mahindra continued their upward movement on Tuesday, with the stock of the information technology (IT) consulting & software company hitting a new high of Rs 1,322.40, up 2.7 per cent on the BSE. The stock was quoting higher for the fourth straight trading day.

In the past one month, Tech Mahindra has outperformed the market by surging 25 per cent, as compared to a 4.4 per cent rise in the S&P BSE Sensex. In comparison, its peers, Tata Consultancy Services (up 3.5 per cent), Infosys (7 per cent), Wipro (15 per cent) and HCL Technologies (8 per cent) were up between 3 per cent and 15 per cent.

The outperformance for Tech Mahindra was also on account of better-than-expected June quarter (Q1FY22) performance with growth across key markets and verticals, robust deal wins and guidance of double-digit growth rates for FY22.

The company reported a 39.17 per cent year-on-year (YoY) jump in its consolidated net profit at Rs 1,353 crore for Q1FY22 as against Rs 972-crore profit posted in the corresponding quarter last year. On a quarter-on-quarter (QoQ) basis, the profit rose by 25.13 per cent.

The consolidated revenue from operations in Q1FY22 grew 11.98 per cent YoY at Rs 10,198 crore. The company had posted revenue of Rs 9,106 crore in the same period a year ago. Sequentially, the figure rose by 4.8 per cent from Rs 9,730 crore posted in the preceding quarter, led mainly by 4.5 per cent QoQ growth in Enterprise revenues and 2.9 per cent QoQ growth in communications.

Net new deal wins were robust with a total contract value (TCV) of USD 815 million, split across CME (USD352mn) and Enterprise (USD463mn). Despite strong deal closures in the last two quarters, the deal pipeline remains healthy. Management remains confident of delivering double-digit revenue growth with at least 15 per cent earnings before interest tax (EBIT) margin in FY22E, driven by broad-based demand, healthy deal intake and an all-time high deal pipeline.

“Management indicated that it is seeing traction in large deals with a growing demand for integrated digital transformation. 5G, customer experience, data, analytics and cloud remain the key focus areas, and the company is actively strengthening its capabilities in these areas through M&As. It signed the largest healthcare and BPS deal in Q1. Despite healthy deal closures in Q1, the deal pipeline is at an all-time high, which augurs well for growth visibility and revenue acceleration,” analysts at Emkay Global Financial Services said in result update.

Management remains fairly confident of delivering double-digit revenue growth in FY22E with some upside, given broad-based demand across verticals, recovery in CME, robust deal wins and the highest-ever deal pipeline, the brokerage firm said with ‘buy’ rating on the stock and target price of Rs 1,480 per share.