Tech Mahindra hits 52-week high after Q2 earnings beat

Tech Mahindra Ltd

Tech Mahindra shares surged over 4 percent, reaching a 52-week high of Rs 1,761.85, following a strong Q2FY25 earnings beat. This prompted brokerages like Centrum Broking and Phillip Capital to raise their target prices on the stock.

At 10.22 AM, the stock traded 2 percent higher at Rs 1,725.85. Year-to-date, Tech Mahindra has gained 33 percent, outperforming the Nifty 50's 14 percent rise over the same period.

Tech Mahindra reported a strong performance for the quarter ended September, with consolidated net profit surging nearly 47 percent quarter-on-quarter to Rs 1,250 crore, surpassing Moneycontrol's estimate of Rs 1,036 crore. Revenue from operations grew by 2.4 percent QoQ to Rs 13,313 crore, also beating Moneycontrol's forecast of Rs 13,171 crore.

The company had also declared an interim dividend of Rs 15 per share.

Centrum Broking raised its target price for Tech Mahindra to Rs 1,803 from Rs 1,629. While near-term demand faces challenges due to pressure on discretionary spending, the brokerage anticipates a gradual recovery, driven by the ramp-up of recently signed deals.

Phillip Capital raised its target price for Tech Mahindra to Rs 1,530 from Rs 1,510. While the company is making steady progress on margins, the growth outlook remains uncertain due to challenges in Communications, Manufacturing, and fewer encouraging deal wins.

"Management's stance on large/mega deals remains unchanged, as they are not keen on aggressively pursuing them, which could impact future margins. We believe this approach is likely affecting their market share in Communications. Q3 is expected to be impacted by furloughs, fewer working days, and the absence of last year’s

one-time passthrough revenue," said Phillip Capital.

During a post-earnings call on October 19, Tech Mahindra made it clear that the company will focus on protecting its margins over chasing large deals.

In Q2FY25, Tech Mahindra won net new deal wins worth $603 million, primarily driven by additions in the banking, financial services, and insurance (BFSI) vertical. Although deal wins were down 5.7 percent year-on-year, they increased by 12.9 percent sequentially.

Nuvama said that although the Q2FY25 results were a step in the right direction, the road ahead is quite challenging. "Growth shall be difficult with telecom still forming 33 percent of revenue while margins are likely to face headwinds (building bench strength, investing in growth) before tailwinds (employee pyramid, subcontracting costs). We continue to expect near-term pain before any long-term gain," the brokerage said maintaining its 'Reduce' rating on the stock.

The EBIT margin of Tech Mahindra expanded by 110 QoQ to 9.6 percent, driven by currency movement, operational efficiencies under Project Fortius. Management highlighted a reduction in subcontracting costs, improved offshoring mix, and the addition of freshers to support margin growth.

"We believe Tech Mahindra's Phase 1 transformation is progressing well, with EBIT margins likely to exceed 12.7 percent by FY26," Motilal Oswal said on a positive note.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.