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In Q3 FY24, Tech Mahindra Ltd. reported revenue of Rs 13,101 crore, up 1.8% on a QoQ basis, which stood above our expectations. However, revenue de-grew by 4.6% on a YoY basis and stood below our expectations.
The company posted an operating profit of Rs 703 crore, reporting a growth of 15.9% on a QoQ basis. The company’s operating margins, while improving by 70 bps, stood below our expectations.
The marginal growth was largely led by moderated SG&A expenses and a favourable currency mix. Tech Mahindra’s net profit for Q3 FY24 stood at Rs 510 crore, registering a growth of 3.3% QoQ.
Outlook
From a long-term perspective, we believe Tech Mahindra is sorting out the clients specific engagement issues on the verticals front and the deal pipeline remains sturdy.
However, rising concerns over the prospects of large economies along with prevailing supply-side constraints pose uncertainties over the company’s short-term growth rates.
Valuation and recommendation
We assign a 18 times price/earnings multiple to its FY26E earnings of Rs 71/share to arrive at a target price of Rs 1,265/share, implying a downside of 10% from the current market price.
Hence, we recommend a ‘Sell’ on the stock. We belive that the recent run up in the stock price already factored in the valuation.
Key risks to our estimates and target price
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The demand environment is uncertain because of the potential threat of recession from the world’s largest economies.
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The rising subcontracting cost and cross-currency headwinds may impact the company’s operating margins negatively.
Click on the attachment to read the full report:
Axis Securities Tech Mahindra Q3 FY24 Results Update.pdf
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