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Yes Securities Report
Tech Mahindra Ltd. reported weak financial performance for the quarter. The sequential revenue growth and Ebit margin were below expectation.
Tech Mahindra's revenue declined by 4.2% QoQ in constant currency terms. (down 4.1% QoQ in Indian rupee terms, down 4.0% QoQ in U.S. dollar terms), led by communication, media and entertainment segment (down 9.5% QoQ).
There was sequential decline in Ebit margin(down 438 basis points QoQ) on lower revenue, impact of wage hike and higher selling, general and administrative expense.
Employee attrition continues to moderate as last twelve months attrition was down 2% QoQ to 13%.
We believe that the multiyear technology adoption cycle broadly remains intact. However, the clients remain cautious regarding the evolving macroeconomic situation and that is reflected in slowdown in discretionary spending and it continues to impact near term revenue performance.
The continued weakness in telecom vertical is expected to result in muted revenue growth for FY24.
Falling employee attrition, improving employee pyramid and focus on better revenue mix should support operating margin going ahead.
We estimate revenue compound annual growth rate of 9.5% over FY23‐25E with average Ebit margin of 12.4% over the period.
We revise our rating on the stock from 'Add' to 'Neutral' with target price of Rs 1,199/share at 15.0 times on FY25E earnings per share.
The stock trades at price-to-earning ratio of 19.5 times/14.3 times on FY24E/FY25E EPS.
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Also Read: Tech Mahindra Q1 Results Review - Weak Execution On All Fronts; Warrants Derating: ICICI Securities
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