Tech Mahindra shares trade flat post Q3 results; brokerages remain divided

Shares of Tech Mahindra in the morning deals were trading flat with a negative bias on the BSE. Around 10:25 AM, shares of the information technology (IT) firm were down 0.24 per cent at Rs 1,654.8 per share, logging an intraday low at Rs 1625 per share.  

 

Tech Mahindra, the Pune-headquartered IT services company, released its Q3FY25 results, after market hours, on Friday, January 17, 2025. The company reported a net profit of Rs 983.2 crore as compared to Rs 1,250.1 crore in Q2 which implies a fall of 20.9 per cent quarter-on-quarter (Q-o-Q). On a year-on-year (Y-o-Y) basis, the net profit gained 93.7 per cent. 

 

 

Tech Mahindra in the quarter under review reported a revenue of Rs 13,285.6 crore as compared to 13,313.2 crore in Q2. On a Y-o-Y basis, the revenue increased by 1 per cent. The company posted Earnings before interest and tax (Ebit) for the third quarter ended December 31, 2024, at Rs 1,350 crore as compared to Rs 1,280 crore in Q2. Ebit margin for the third quarter stood at 10.2 per cent as compared to 9.6 per cent in Q2. 

 

Analysts have mixed views on the Q3 earnings of Tech Mahindra, while some have maintained their rating of the stock, some have revised the target price. 

Here is what brokerages make of Tech Mahindra's Q3 results:

Motilal Oswal | Rating: 'Neutral' | Target price: Rs 1,850 per share

Tech Mahindra has taken another step in the right direction. The company's phase 1 transformation progressing well with its Earnings before interest and tax (Ebit) margins likely to grow to 12.5 per cent by FY26E. 

 

Further, the period from FY26 to FY27 may bring renewed margin pressures across the industry, including rising attrition rates, high costs associated with backfilling roles, and increasing demand for specialised talent. While this implies some risk to management guidance for FY27, the market could continue to reward for staying on course and directionally progressing well. 

 

Tech Mahindra's presence in the communications segment, which remains under notable duress, makes the new management’s job much harder. Thus, Motilal Oswal remains on the sidelines, as it believes the current valuation fairly factors in the uncertainties around growth and margin.

HDFC Securities | Rating: 'Reduce' | Target price: Rs 1,610 per share

Tech Mahindra’s Q3 print came a tad higher on growth/margin with revenue growth at 1.2 per cent Q-o-Q in constant currency (CC) and Ebit margins improving 55 basis points (bps) Q-o-Q, recovering back to double digits. 

 

The key positive in the quarter was new deal wins that came at $745 million, the highest in two years. The company's Ebit quarterly rate has moved above the FY24 rate and trending towards the FY23 levels. While this sets up Tech Mahindra towards its FY27E Ebit margin target of 15 per cent, its rapid start to margin recovery over the past three quarters is more a function of absolute cost reduction (both cost of services and SG&A) rather than revenue growth. 

 

This rate of change of 300 bps margin improvement in the last three quarters will moderate once the cost base resets and the quality of growth becomes a bigger driver. The deal booking trajectory needs consistency for a sustained growth recovery; the IT company’s new deal bookings in the last 12 months were at $2.4 billion, only slightly higher than HCLTech's quarterly new deal bookings with HCLTech being only 2.2x TECH Mahindra’s revenue rate. The gradient of recovery is along expected lines, yet the ask remains steep. Even as the direction of recovery is positive, the revenue trade off for margin remains a base case in the medium term. 

Centrum Broking | Rating: 'Add' | Target price raised to Rs 1868 per share from Rs 1,803

Tech Mahindra reported broadly in-line performance for the quarter. The near-term demand environment remains subdued with some revival seen in discretionary tech spending. We expect a gradual recovery going ahead, led by ramping up of recently signed deals. The management’s focus on driving operating margin is on the right track. We expect Revenue/Ebitda/PAT to clock 8.1 per cent/33.2 per cent/49.0 per cent compound annual growth rate (CAGR )over FY24-FY27E. We have revised our FY25E/FY26E/FY27E EPS by (4.8 per cent)/(5.8 per cent)/(5.1 per cent).

Antique Stock Broking | Rating: Buy | Target price raised to Rs 1,975 per share from Rs 1,925

Management commentary suggests that the overall demand environment is showing a gradual improvement, with pockets of demand visible in the prioritized markets of North America, Europe, and Asia-Pacific region, resulting in deal activities growing sequentially. Ebit margin continued to expand sequentially for four consecutive quarters by 60 bps Q-o-Q to 10.2 per cent, again above our expectation. 

 

The company continues to build-in a strong senior team and is investing in strengthening the partner ecosystem. Given the strong deal performance, continued traction in key verticals, and significant investments made for long-term sustainable growth, we believe Tech Mahindra is well-positioned as it enters a new calendar year.