Tech Mahindra Ltd. is still favoured by most brokerages after a decent first-quarter earnings, even as target prices indicate muted gains.
Of the 26 brokerages tracking the company, 12 have 'buy' calls, and seven each have 'sell' and 'hold' following quarterly results, as per Bloomberg data. The average price target of Rs 1,616 implies a return upside of 0.5% over the previous close.
CLSA has the highest target price of Rs 2,020 on Tech Mahindra, implying a return potential of 9.5%. HSBC has pegged the stock to a target of Rs 1,900, and Incred to Rs 1,877.
Tech Mahindra Q1 Recap
Consolidated, QoQ performance
Revenue down 0.2% to Rs 13,351.2 crore from Rs 13,384 crore (Bloomberg estimate: Rs 13,422 crore).
EBIT up 7% to Rs 1,477.1 crore from Rs 1,378 crore (Bloomberg estimate: Rs 1,480 crore).
EBIT margin expands by 80 basis points to 11.1% from 10.3% (Bloomberg estimate: 11.02%).
Profit down 2% to Rs 1,140.6 crore from Rs 1,378 crore (Bloomberg estimate: Rs 1,198 crore).
Tech Mahindra's June quarter performance largely aligned with analyst estimates. The company showed a positive trend in margins, which improved by 76 basis points, indicating it's on track to meet its FY27 target of 15%.
The communications segment, which contributes the most to the topline, grew by 3%. A significant highlight was the new deal wins, which outperformed expectations at $809 million, surpassing the estimated range of $600-$800 million.
However, revenue in constant currency (CC) terms saw a downtick of 1.4% quarter-on-quarter.
Highlights From Top Brokerages
Morgan Stanley
Maintain 'Underperform' and reduce target price to Rs 1,555 from Rs 1,575.
The company effectively delivered on its margins.
Key positives include strong deal wins, stability in top clients, and steady improvement in margins.
However, significant concerns remain, such as the weak conversion of deals to revenue, a challenging outlook for verticals like manufacturing, and a weak macroeconomic environment.
We maintain an 'Underperform' rating due to the risks to consensus estimates and premium valuation multiples.
Macquarie
Maintain 'Underperform' and hike target price to Rs 1,110 from Rs 1,090.
EBIT margin was in line with expectations, excluding an 18 basis points one-time gain.
The company continues to lag behind its peers in growth across key verticals.
Continue to believe that achieving a 15% EBIT margin and peer group average growth by FY27 remains a very challenging task.
Jefferies
Maintain 'Underperform' and reduce target price to Rs 1,400 from Rs 1,430.
The company reported a revenue miss, though profits were ahead of estimates.
Revenue growth continues to be under pressure despite strong deal wins.
Achieving 15% margins by fiscal 2027 would require a quarterly margin expansion of 75 basis points over the next seven quarters, which appears very optimistic given the expectation of 1-2 wage hike cycles and a challenging growth environment.
Rich valuations, coupled with what are perceived as overtly optimistic consensus estimates, compel us to maintain an 'Underperform' rating.
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