Brokerage JP Morgan has reduced its revenue estimate by up to 3-8 percent for IT companies Tech Mahindra and Mphasis for financial year 2024 and 2025, due to challenges faced by BFSI, telecom and hi-tech customers in the western markets.
For Mphasis, the brokerage has reduced the price target to Rs 1,550 per share, reflecting around 11 percent downside from the current trading price due to estimated lower revenues.
The brokerage reduced the price target to Rs 900 per share for Tech Mahindra implying around 10 percent downside from the current trading price.
Leading IT companies such as TCS, Infosys and HCLTech have highlighted weaknesses and challenges in BFSI, Telecom, Hi-tech, Manufacturing and retail verticals as clients ramp down, cancel and defer projects, the brokerage said in a note.
Tech Mahindra & Mphasis are likely to be the worst hit as 40 percent of Tech Mahindra's business is exposed to telecom, while 10 percent is for Hi-tech. In Mphasis' case, 62 percent of its topline comes from the BFSI segment, while 13 percent comes from Hi-Tech.
Lower revenue would drive around 7 percent and 10 percent cut in earnings per share (EPS) estimates for Tech Mahindra, JPMorgan said.
This is Tech Mahindra's second downgrade in the last four days, after Citi downgraded the stock to sell, citing risks to the communication vertical.
