Tech Mahindra up 14% post Q4 nos: Will telecom business boost?

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26 Aug, 2025 12:21

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Moneycontrol Bureau Most analysts are upbeat on Tech Mahindra and believe worst is over for the IT company with telecom business stabilising soon. Its fourth quarter consolidated profit increased 18.2 percent sequentially to Rs 897 crore, driven by other income, forex gain and lower tax cost. Revenue rose 2.7 percent to Rs 6,883.7 crore and dollar revenue was up 0.75 percent at USD 1,022.6 million compared to preceding quarter. After hitting high of 14 percent, the stock ended with 10 percent gains on Wednesday. Credit Suisse maintains outperform rating as it is positive on cash flows (a problem area) which has shown good improvement in FY16. The management expects a flatter employee pyramid, automation and improvement in some low-margin businesses as drivers in the future.Deutsche Bank has a buy rating, anticipating a 50 percent upside post Q4 numbers. It expects Tech Mahindra to deliver 9 percent (YoY) USD revenue growth in FY17, with operating margin (EBIT) expanding 190 basis points (bps) and earnings growth of 25 percent. "With growth back in place, the stock should steadily rebuild the valuation multiple that we believe its enhanced scale and breadth of operations deserve," it says in a report. Jefferies also has a buy rating with an increased target of Rs 580 per share. Morgan Stanley has upgraded the stock to equal weight from neutral. It has a target price of Rs 530 per share as outlook for telecom business is improving, and worst in earnings downgrade cycle appears to have passed. However, the brokerage has cut FY17-18 revenue and EBIT estimates by 1 percent on reduced estimates for LCC (a company acquired recently), but due to better other income and lower tax rate, it has increased earnings forecast by 3-4 percent. Bank of America Merrill Lynch has a neutral rating stating that valuation is undemanding but lacks catalyst. It agrees that telecom vertical finally appears to be stabilising but uptick in spends is likely to be slow. It has lowered target price to Rs 515 per share. Telecom vertical benefitted from seasonal uptick in Comviva asset while pruning of lowend businesses in the LCC asset impacted negatively. It continues to expect a protracted margin recovery as improving offshore revenue mix, employee pyramid and payoff from automation efforts is likely to be gradual in a scenario of modest revenue growth.Macquarie has a neutral rating on the stock with a target of Rs 530 per share. According to it, Tech Mahindra has the right credentials to deliver growth, but believes management will need to get telecom growth and margins on track to fully regain investor confidence. "Management sounded more optimistic about its telecom business  going into FY17. As per Tech Mahindra, there are signs that stability is returning in its telecom business. While traditional telecom spends have been declining, new areas like digital enablement and enterprise are growing well within telecom," it says in a report. However, Citi suggests selling the stock as Tech Mahindra's organic revenue growth  remains well below peers given the headwinds in its communications business and the headcount decline in this context does not inspire much confidence. "Flattish gross margins despite 8 percent rupee depreciation and 6 percent improvement in utilisation highlights the challenges to profitable growth," it says in a report. At 16:00 hrs Tech Mahindra was quoting at Rs 528.55, up Rs 49.30, or 10.29 percent on the BSE.Follow @NasrinzStory