Tech Mahindra share price plunged over 5% in early trade on Friday after the company announced its Q1 results largely in-line with street estimates. Tech Mahindra shares fell as much as 5.52% to ₹1,445.50 apiece on the BSE.
The fifth-largest software services company in India, Tech Mahindra reported a net profit of ₹851.5 crore in the first quarter of FY25, registering a growth of 28.8% from ₹661 crore in the previous quarter.
The company’s revenue in Q1FY25 increased 1% to ₹13,006 crore from ₹12,871.3 crore, quarter-on-quarter (QoQ). Revenue in USD terms rose 0.7% to $1,559 million from $1548 million.
“Tech Mahindra reported broadly in-line operating performance. Revenue inched up 0.7% QoQ to US$1.56bn, largely meeting our estimates. Growth was fairly broad-based, with 5 of the 7 verticals seeing QoQ growth (decline in Communications due to Comviva seasonality),” sadi Dipeshkumar Mehta, Senior Research Analyst at Emkay Global Financial Services Ltd.
At the operating level, the company’s EBIT in the April-June quarter rose 16.5% to ₹1,102.3 crore from ₹946.4 crore, while EBIT margin expanded by 110 bps to 8.5% from 7.4%, QoQ.
“EBIT margin of 8.5% was also in line with our estimate, with headwinds from Comviva seasonality and higher visa costs offset by benefits accrued from Project Fortius. The management highlighted that its ‘speed at scale’ strategy is being well received by clients, and reiterated that FY25 should be better than FY24. The demand environment has remained fairly similar to last quarter’s, albeit seeing some improvement versus previous year,” Mehta said.
With the company’s delivery execution to achieve its ‘Vision 2027’ strategy off to a solid start, the brokerage firm hikes its target multiple to 22x from 19x. It tweaked FY25-27E EPS estimates by -2% to +2%, factoring in the Q1 performance and higher ETR assumptions.
Emkay Global maintained ‘Add’ rating on Tech Mahindra shares and raised target price to ₹1,650 per share from ₹1,425 earlier.
According to Nuvama Institutional Equities, Tech Mahindra Q1 results are a step in the right direction, but believes the road ahead shall be quite challenging.
“Growth shall be difficult with telecom still forming 33% of revenue while margins are likely to face headwinds (building bench strength, investing in growth) before tailwinds (employee pyramid, subcontracting costs). We continue to anticipate near-term pain before any long-term gain,” Nuvama Equities said.
Motilal Oswal remains positive about the restructuring at Tech Mahindra under the new leadership and believes this quarter was another step in the right direction.
“But we expect the impact from these steps to be visible gradually. Further, Tech Mahindra’s presence in the communications segment, which remains under notable duress, makes the new management’s job that much harder,” Motilal Oswal said.
Its FY25/FY26 EPS estimates remain broadly unchanged and sees FY25E/FY26E EBIT margins at 9.2%/12.4%, resulting in a 25% CAGR in INR PAT over FY24-26E. The brokerage form remains on the sidelines as it feels the current valuation fairly factors in the uncertainties around growth and margin.
Motilal Oswal remains ‘Neutral’ on Tech Mahindra stock and upgrades its target multiple to 23x FY26E EPS and raises target price of ₹1,470 implies a 5% downside.
The brokerage firm maintained ‘Reduce’ with a target price of ₹1,200 per share from ₹1,000 earlier.
At 9:35 am, Tech Mahindra shares were trading 1.82% lower at ₹1,502.30 apiece on the BSE.
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