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Dolat Capital Report
Tech Mahindra Ltd.'s revenue declined by 4.2% in constant currency terms versus (our estimate: -1.9% CC). Decline was led by de-growth in communication, media and entertainment at 9.5% QoQ, while enterprise segment revenue declined by 0.3% QoQ.
IT services was down 5%, while business process outsourcing business grew 1.3% QoQ (Indian rupee).
Operating profit margin stood at 6.8%, (our estimate: 10.2%), down 440 basis points QoQ led by unexpected headwinds from revenue decline (200 bps), one-time provision impact from client's bankruptcy (200 bps) and adverse seasonality in Comviva (50 bps).
Tech Mahindra attributed decline was led by completion of multiple transformation programs and weak refill rate (total contract value down 25% on trailing twelve months basis at $2.5 billion), exit of a Telco client due to bankruptcy and deals pushed out in digital. It pointed worst is behind, and tight focus on execution would lead to revival.
Overall performance remain sluggish. Macro risks, including spending cuts by telecoms is more susceptible to Tech Mahindra.
Expect leadership strategy as only medium term catalyst. Maintain 'Sell' with target price of Rs 1,080 at 18 times of FY25E.
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