Reduce Tech Mahindra; target of Rs 1050: Sharekhan

Sharekhan's research report on Tech Mahindra

Revenue declined 2.4% q-o-q in constant currency to $1,555 , missing our estimates of 0.3% decline q-o-q, on account of weak revenues due to headwinds and sluggishness in the CME vertical and business rationalisation. EBIT margin contracted sharply by 206 bps q-o-q to 4.7 %, below our estimates of 8.9% owing to higher direct cost and weak revenues. Net new deal win TCV stood at $640 million, up 78% q-o-q/ down 11% y-o-y. Net headcount increased by 2,307 taking the total headcount to 1,50,604 however Utilization declined by 100 bps q-o-q to 86%.

Outlook

With consecutive disappointing quarters, deterioration in operational metrics and the likelihood of uncertainty persisting for next couple of quarters we believe Tech Mahindra’s near term earnings outlook continues to remain at risk. Hence, we maintain Reduce on Tech Mahindra with unchanged price target (PT) of Rs 1050. At CMP the stock traded at 18.3/15x its FY25/26E EPS.

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