Reduce Tech Mahindra; target of Rs 1050: Sharekhan

Sharekhan's research report on Tech Mahindra

Constant currency revenue declined 4.1% q-o-q, missing our estimates of 1.9% decline q-o-q, due to weak revenues from CME and BFSI verticals, down 9.4%/3.2% q-o-q. EBIT margin contracted sharply by ~440 bps q-o-q to 6.8 %, below our estimates of 10.8% due to revenue drop impacting margin, one-time provisioning and seasonality. Net new deal win (TCV) for the quarter stood at $359 million, down 39% q-o-q/ 55% y-o-y. The number of active clients declined by 42 to 1255.Net headcount declined by 4,103 taking the total headcount to 1,48,297.

Outlook

Tech Mahindra reported the weakest performance among Tier 1 IT service companies with declining trajectory of Net new deal wins which places its earnings outlook at risk. Hence, we downgrade Tech Mahindra to Reduce with revised PT of Rs 1050. At CMP, the stock trades at 21.2/15.5x FY24E/FY25E EPS.

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