Tech Mahindra Q3 Results Review — Inline With Growth Strategy, IDBI Capital Maintains 'Hold' On The Stock

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IDBI Capital Report

Forex movements proved negative for Tech Mahindra Ltd. leading to muted $ revenue. In reported terms, revenue dipped by 1.3% (led by furloughs) and improved by 1.2% (led by banking, financial services and insurance and healthcare) in constant currency terms QoQ.

Inline with their strategy, company is investing (1.5% of margin) in leadership in other verticals (maintaining leadership in communication and manufacturing) to improve the revenue mix which would lead to reduction in concentration risk (telcos).

With expanding the verticals, Tech Mahindra is also investing in leadership for lesser penetrated geos (Europe, Asia pacific, etc). We believe, these investments would impact the margins in the short run, however, operational efficiency and rigor would be able to offset.

In Q4 FY25, margins will dip by ~1.5% on account of wage hike implementation. With improving demand environment, company is sanguine on CY25 to be better than CY24 coupled with signs of demand recovery (in telecos and other verticals) and steady pace of large deal wins ($745 million, +23%QoQ).

Based on the company’s growth trajectory in past a year and upcoming strategy, we expect company to perform well. Contingent to, we roll into FY27 by maintaining the target price at Rs 1,778 (24x FY27E EPS) and Hold rating.

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