Shares of Tech Mahindra slipped 6 percent to Rs 1,322 on the BSE in Thursday’s intraday trade as investors booked profit in the shares after the company reported a 60.6 percent year-on-year (Y-o-Y) decline in net profit to Rs 510.4 crore for the December quarter (Q3FY24).
Ahead of the result, the stock rallied 13 percent in the past two weeks. It had hit a 52-week high of Rs 1,416 on January 23. Despite today’s decline, the stock has outperformed the market by gaining 16 percent in the past six months, as against a 6.7 percent rise in the benchmark index.
At 09:40 AM, Tech Mahindra was quoting nearly 5 percent lower at Rs 1,343.85 as compared to a 0.32 percent decline in the S&P BSE Sensex.
In Q3FY24, Tech Mahindra’s revenues stood at Rs 13,101 crore, down 4.6 percent Y-o-Y. Sequentially, the revenues were up 1.8 percent and profit was up 3.2 percent. In constant currency (CC) terms, revenue was up 1.1 percent quarter-on-quarter (Q-o-Q)/ down 5.7 percent Y-o-Y at $1,573 million.
In Q3FY24, reported earnings before interest and tax (EBIT) margin stood at 5.4 percent, up 70bp Q-o-Q. Total contract value (TCV) came in at $381 million (down 40 percent Q-o-Q/down 52 percent Y-o-Y), pulling down its trailing 12-month TCV/book to bill to its lowest in the last 3/5 years.
The company’s performance was impacted due to the macro uncertainty and weakness in top verticals like telecommunications, BFSI, and retail.
The management said the quarter was a mixed outcome, with growth in the Manufacturing and Healthcare segments, but muted spending in areas like Communications, BFSI, and Hi-tech. While this market dichotomy will take its own time to settle, the management said the company is focusing internally on realigning under the new structure and strengthening the foundations of the organization.
Meanwhile, Tech Mahindra has absorbed the wholly owned subsidiaries; Perigord Premedia (India) Pvt. Ltd., Perigord Data Solutions (India) Pvt. Ltd., Tech Mahindra Cerium Pvt. Ltd. & Thirdwave Solutions Ltd. via a modified scheme of merger with the company, it said in an exchange filing.
Tech Mahindra had another quarter of low profitability, with a 7.0 percent adjusted EBIT margin (excluding restructuring and other one-time costs), down 30bp Q-o-Q/500bp Y-o-Y, and slightly below our estimates, Motilal Oswal Financial Services (MOFSL) said in its result review report.
The brokerage, however, said it remains positive about the restructuring initiatives at Tech Mahindra under the new leadership. The recent steps, including right-sizing SBUs, investing in key accounts, establishing vertical delivery teams, and prioritizing employee investments, are moves in the right direction, it said.
That said, MOFSL expects to see the positive impact of these actions only gradually, which can result in near-term misalignment with investor expectations, particularly in profitability.
With the management committing to incremental clarity post Q4 earnings, April remains the key to any view change, the brokerage firm said with a ‘Neutral’ rating on the stock.
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