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Yes Securities Report
Tech Mahindra Ltd. reported weak financial performance for the quarter. The sequential revenue growth and Ebit margin were below expectation. Revenue declined by 2.4% QoQ in constant currency terms. (down 2.2% QoQ in rupee terms, down 2.9% QoQ in USD terms), led by communication, media and entertainment segment (down 4.9% QoQ).
There was sequential decline in Ebit margin (down 206 bps QoQ) on lower revenue. Employee attrition continues to moderate as last twelve months attrition was down ~2% QoQ to 11%.
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.
Tech Mahindra's 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 8.1% over FY23‐25E with average Ebit margin of 11.5% over the period.
We maintain our 'Neutral' rating on the stock with revised target price of Rs 1,190/share at 16.0 times on FY25E earnings per share. The stock trades at price-to-earning of 25.5 times/15.4 times on FY24E/FY25E earnings per share.
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