Tech Mahindra Q3 Results Review - Muted Show Led By Subdued Performance Across Verticals: Yes Securities

Yes Securities Report

Tech Mahindra Ltd. reported muted financial performance for the quarter. The sequential revenue growth and Ebit margin were inline with expectation. Revenue increased by 1.1% QoQ in constant currency terms. (up 1.8% QoQ in Indian rupee terms, up 1.1% QoQ in USD terms), led by manufacturing segment (up 3.4% QoQ).

There was sequential improvement in Ebit margin (up 65 basis points QoQ) on lower cost of services. Employee attrition continues to moderate as last twelve months attrition was down ~1 percentage points QoQ to 10%.

The near term demand environment remains challenging as 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 is expected to support operating margin going ahead.

We estimate revenue compound annual growth rate of 10.7% over FY23‐26E with average Ebit margin of 11.0% over the period.

We maintain our 'Neutral' rating on the stock with revised target price of Rs 1,435/share at 22.6 times on FY26E EPS. The stock trades at PER of 20.8 times/22.2 times on FY25E/FY26E EPS.

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