1 / 6A snapshot of Tech Mahindra Q1 earnings. The firm's earnings before interest and taxes (EBIT) margin and constant currency growth was the lowest among peers.
2 / 6Morgan Stanley sees a seven percent downside (from July 26 closing price) in the stock with an equal weight rating. The brokerage believes the IT services firm’s first quarter performance will rebase consensus estimates for the 2023-24 fiscal, with downside risk to FY25 as well. However, investors will not give up hope of a margin recovery, especially with new management in place, it said. MS has lowered FY24 EPS projection by 19 percent owing to 37 percent 1Q earnings miss and cut FY25/26 EPS by 3.3 percent and 4.1 percent, respectively. Also, it sees better risk reward in HCL Tech.
3 / 6Nomura, on the other hand, has a buy rating and sees as much as 15 percent upside in the stock. According to the brokerage, the June quarter earnings were a big miss but likely the bottom. It expects demand moderation to weigh on growth in FY24. It noted that the revenue in the quarter went by missed estimates due to sharp weakness in the telecom vertical, which is likely to see a gradual recovery with better growth in the second half of the fiscal. The margin miss was driven by provisioning, salary hikes and revenue decline, it said and revised FY24-25 EPS projection by 3-10 percent.
4 / 6Jefferies has an underperform stance on the company and has cut the target price to Rs 900, implying it expects the stock to slip more than 21 percent. It said that the sequential fall in revenues, EBIT margin and deal bookings was disappointing. The sharp nine percent QoQ decline in CME vertical and single digit margins were key negative surprises. The brokerage added that continued pressure in CME vertical and headcount decline does not bode well for growth. It has cut FY24-26 earnings estimates by 4-20 percent on lower growth and margins.
5 / 6UBS maintained its sell rating with a target price of Rs 950 saying Tech Mahindra’s performance in the first quarter was underwhelming, not a blip. All of its peers have missed expectations in this result season but it was a bigger miss for Tech M, it said, adding that it anticipates radical changes in the company with new CEO at the helm. But, all of this is yet to come which effectively means that underperformance may continue for next few quarters, the brokerage said, and cut EPS estimates for FY24/25 by 19 percent and 10 percent, respectively.
6 / 6Of the 44 brokerages that have recommendations on Tech Mahindra, 21 have a buy call, 12 suggest holding shares while 11 have a sell rating, according to Bloomberg data.
