Shares of Tech Mahindra fell more than 2% in intraday trade on BSE on July 26, a day after the IT firm released its June quarter scorecard.
The stock ended 1.68% lower at ₹999.50.
As per a BSE filing by Tech Mahindra, the company's consolidated PAT for Q1FY23 came at ₹1,132 crore, down 24.8% quarter-on-quarter (QoQ) and 16.4% year-on-year (YoY).
Revenue for the quarter under review stood at ₹12,708 crore, up 4.9% QoQ and up 24.6% YoY. EBITDA stood at ₹1,880 crore, down 10% QoQ and up 0.2% YoY.
The total headcount at the end of the June quarter was at 1,58,035 up 6,862 QoQ.
"Delivery transformation, cost optimization and cash conversion will be key focus areas, as we continue to offset the strong supply side headwinds in the market. We aim to expand our profitability through operational excellence and improved operating metrics over the course of FY23,” said Rohit Anand, Chief Financial Officer, Tech Mahindra.
Brokerages retain faith in the stock
Brokerage firm Choice Equity Broking has upgraded the stock to an 'outperform' on the stock of Tech Mahindra with a target price of ₹1,200.
"The company did not perform up to expectations this quarter on the revenue or margin front. However, we believe that the share price has corrected excessively. Hence, we upgrade our rating to an 'outperform' with a target price of ₹1,200 which we derive by lowering our target PE from 20.4 times to 19.7 times and target NTM (next twelve months) EPS (earnings per share) from nearly ₹69 to ₹61.
JM Financial maintained a 'buy' call on the stock but cut the target price to ₹1,210 from ₹1,340, citing that the company’s Q1FY23 reflects strong and balanced revenue growth across communications and enterprise business.
JM Financial, however, highlighted that the company's margins slipped sharper than expected and margins have been coming off for the last three quarters in a row.
"Q1 miss drives 3-6% EPS cuts across FY23-25E. We continue to maintain a 'buy' with a revised target price of ₹1,210 (based on a revised PER of 17 times, at a historical 40% discount to TCS PER) against ₹1,340 earlier (based on 18 times)," said JM Financial.
Sharekhan by BNP Paribas also maintained a buy call on the stock with a target price of ₹1,220 and said it expects strong growth in both enterprise and CME segments in the medium term, given strong deal wins, higher spending on 5G by telecom operators, and accelerated spending on cloud, connectivity, engineering, and customer experience technologies.
"Though wage revision is expected to weigh on its EBIT margin in Q2FY23, management indicated that margin headwinds would be offset by higher utilisation, pricing leverage, recovery in the mobility business, absence of large deal transition and visa expenses, and operational efficiencies," Sharekhan said.
Sharekhan slashed its earnings estimates for FY23E/FY24E/FY25E by around 7-9%, factoring in Q1FY23 results and an anticipated slowdown in discretionary tech spending due to ongoing macro factors and a potential recession in developed markets.
"Tech Mahindra’s strong capabilities in 5G areas will help it to win more 5G deals across telecom ecosystems. However, the company’s exposure towards discretionary spending in engineering, experience design services, and network modernisation would remain vulnerable during recessionary times," Sharekhan said.
"At the current market price, the stock is trading at a reasonable valuation of 17 times and 14 times its FY23E and FY24E earnings estimates. We continue to prefer Tech Mahindra, given improving 5G deals in the telecom space, continued growth in the BPS and XDS businesses, good deal wins, and scope for margin improvement," the brokerage firm added.
Edelweiss Securities also maintained a 'buy' call on the stock with a target price of ₹1,825 but cut FY23E and FY24E EPS by 5.6% and 5.3% respectively.
"Tech Mahindra is witnessing a strong demand environment with a higher proportion of large deal-wins, and the pipeline remains robust. Cloud revenue is growing at an accelerated pace. Tech Mahindra is trading at 13.3 times FY24E," said Edelweiss.
According to a MintGenie poll, an average of 40 analysts have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations made above are those of broking firms and not of MintGenie.