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Tech Mahindra falls 5% as Q1 disappoints Street; brokerages turn cautious

In the recently concluded quarter, the company's revenue declined 4.1 per cent quarter-on-quarter (QoQ) to Rs 13,159 crore, as against Street estimate of flat QoQ growth

Tech Mahindra

SI Reporter New Delhi

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Shares of Tech Mahindra tumbled 5 per cent to Rs 1,082 per share in Thursday's intra-day trade after the company's June quarterly result (Q1FY24) disappointed Street. From soft deal wins to weakness observed across all geographies in the Q1, brokerages turned cautious on the counter.
 
In the recently concluded quarter, the company's revenue declined 4.1 per cent quarter-on-quarter (QoQ) to Rs 13,159 crore, as against Street estimate of flat QoQ growth. On a year-on-year (YoY) basis, however, Tech Mahindra posted a growth of 3.5 per cent.
 
Operating profit, too, saw a decline of 41.8 per cent QoQ to Rs 891 crore, whereas Ebit (earnings before interest and tax) margins contracted by 440 basis points (bps) QoQ, as against Street estimates of 30 bps compression.
 
On the geographical front, while North America (51 per cent of revenue) declined by 0.5 per cent QoQ, Europe (24.6 per cent of revenue) grew by 5.4 per cent  QoQ, and rest of the world (25.9 per cent  of revenue) business de-grew by 8.2 per cent QoQ (in constant currency terms). 
 
Analysts at Nirmal Bang recommended a 'sell' on the counter as they believe that the worst on the US macro front is ahead and customer spending will remain constrained. 
 
"We have cut earnings per share (EPS) estimates across FY25-FY26 on lower revenue, for FY24 that has been because of both lower revenue and margin. We reiterate ‘SELL’ on Tech Mahindra with a slightly higher target price (TP) of Rs 944, rolling forward valuation to June 2025E EPS at an unchanged 13.5x Target PE multiple, 30 per cent discount to sector benchmark - TCS (19.3x)," the brokerage firm added.
 
Vertical-wise, communications, media, and entertainment delivered a de-growth of 9.4 per cent QoQ, whereas manufacturing, banking financial services and insurance (BFSI), and technology saw a de-growth of 0.1-3.2 per cent QoQ.
 
Moreover, analysts at Axis Securities have also shared a 'sell' on the counter due to uncertainty from world's largest economies.
 
"Rising concerns over the prospects of large economies along with prevailing supply-side constraints pose uncertainties over the company’s short-term growth rates. We assign a 16x P/E multiple to its FY25E earnings of Rs 62.7/share to arrive at a target price of Rs 995/share, implying a downside of 13 per cent from the current market price," they added in a post-result review note.

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First Published: Jul 27 2023 | 3:36 PM IST

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