Shares of Indian IT services giant Tech Mahindra fell over 5% in the trading session on January 25, a day after the firm reported its quarterly earnings for the October to December 2023 period. The firm’s net profit declined more than 60% year-on-year to ₹510 crore, which was below the CNBC-TV18 poll projection of ₹605 crore. Sequentially, the profit increased by a mere 3%.
The firm’s revenue in the third quarter fell 4.6% to ₹13,101 crore, compared to ₹13,734.6 crore in the corresponding quarter of the last year. Its revenue in dollar terms slipped 5.7% YoY while it rose 1.1% sequentially to $1,573 million.
Tech Mahindra was the top laggard on the Nifty 50 index, trading 5.6% lower at ₹1,328.50 on NSE at 11:35 am. The stock has given a return of 26.57% in the past year as against the benchmark Nifty 50 which has risen 19.07% during the period.
Following the
third quarter results, Morgan Stanley raised its target price on the IT stock by 10% to ₹1,220, which however is still below its current market price. The brokerage said the third quarter may mark the bottoming of performance and that it expects sharp downward revisions to consensus estimates in the near term. Over the medium term, meanwhile, it views the company as a good potential turnaround story candidate.
On the other hand, HSBC, which expects the stock to ₹1,300, believes that a turnaround remains challenging, especially in the current environment. According to the brokerage, margin expansion is contingent on pyramid improvement or a pricing uptick.
The brokerage comments come as
Tech Mahindra witnessed a sharp decline in operating profits, with margins narrowing to 5.4% from 12% in the year-ago period, which seems to have impacted the headline profit.
Nomura has retained its buy call on the stock with the target price of ₹1,470 as Tech Mahindra’s Q3 growth, it said, was above its estimate while the margin was in line.
The brokerage noted that the margin had a negative impact of 160 basis points from the ongoing portfolio restructuring. It sees the deal wins at $381 million as soft. It noted that trailing 12 months (TTM) deal wins at $1.6 billion were down 51% YoY. Nomura expects full details of the CEO’s turnaround strategy in April.
