Tech Mahindra Q2 Results Review - Big Miss On All Counts; Recovery To Be Gradual: Dolat Capital

Dolat Capital Report

Tech Mahindra Ltd.'s revenue decline by 2.4% in constant currency versus (our estimate: -1% CC). Decline was led by de growth in communications, media and entertainment at 4.9% QoQ while enterprise revenue declined by 1.6% QoQ. IT Services was down 2.5% in rupee terms, while business process outsourcing business de-grew 0.7% QoQ.

Reported operating profit margin stood at 4.7%, (our estimate: 5.3%), down 210 basis points QoQ. Adjusting for one-time Goodwill impairment impact (120bps), it stood at 5.9%.

Tech Mahindra's management attributed decline was led by continued portfolio rationalisation of low yield areas and weak refill rate (total contract value down 26% on trailing twelve months basis at $2.4 bllion). It pointed that it will continue to rationalise in coming quarter and have proposed new organisation structure effective January 01, 2024.

Overall performance remain sluggish. Macro risks, incl. spending cuts by key clients remains susceptible. Expect renewed strategy to pave way but that would be gradual. Assign 'Reduce' with target price of Rs. 1,180 at 18 times of FY26E.

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