Tech Mahindra Q2 Results Review - Miss Expectations; Outlook Remains Weak: Axis Securities

Axis Securities Report

Financial Performance

In Q2 FY24, Tech Mahindra Ltd. reported revenue of Rs 12,869 crore, down 2.2% on a QoQ basis. While it posted a de-growth of 5.9% on a YoY basis (in constant currency terms), it stood below our expectations.

The company posted an operating profit of Rs 606 crore, reporting a de-growth of 31.9% on a QoQ basis. Tech Mahindra’s operating margins, too, stood below our expectations, declining by 210 bps. This was largely led by higher selling, general and administrative expenses, an unfavorable currency mix, and one-time acquisition costs during the quarter.

The company’s net profit for Q2 FY24 stood at Rs 505 crore, registering a de-growth of 28.7% QoQ.

Outlook

From a long-term perspective, we believe Tech Mahindra is sorting out the client 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 16 times price/earnings multiple to its FY25E earnings of Rs 62.1/share to arrive at a target price of Rs 995/share, implying a downside of 13% from the current market price. Hence, we recommend a 'Sell' on the stock.

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