Tech Mahindra shares rise after Q2 profit beats estimates

Shares of Tech Mahindra were in focus today after the IT services firm reported a 4 percent year-on-year fall in consolidated net profit for the quarter ended September 2022 The firm logged a profit of Rs 1,285 crore in Q2 against Rs 1,338 crore profit in the corresponding quarter of the previous fiscal. Profit came higher than estimates, which boosted sentiment around the stock. Brokerage Sharekhan had expected a 9.3 per cent YoY fall in net profit at Rs 1,215 crore despite a 21.4 per cent YoY rise in net sales at Rs 13,208 crore.

Similarly, ICICI Direct anticipated Tech Mahindra's profit falling 11.8 per cent YoY to Rs 1,181 crore. Tech Mahindra stock rose 2.5 per cent to Rs 1,098.45 against the previous close of Rs 1071.65 on BSE. 

Market cap of the firm rose to Rs 1.04 lakh crore. Total 1.17 lakh shares of Tech Mahindra changed hands amounting to turnover of Rs 12.75 crore.

Tech Mahindra shares are trading higher than 5 day, 20 day, 50 day and 100 day moving averages but lower than 200 day moving averages. The stock has lost 39.74 per cent since the beginning of this year and fallen 27.6 per cent during the last one year. The IT stock hit a 52-week high of Rs 1837.75 on December 30, 2021 and a 52-week low of Rs 944.10 on June 17, 2022.

Revenue in Q2 increased nearly 21% on year to Rs 13,129 crore. Sequentially, revenue rose 3.3% and profit nearly 14%. In constant currency (CC) terms, the dollar revenue grew by nearly 3% sequentially.

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Tech Mahindra's operating profit dipped 0.6% YoY to Rs 1,984 crore but rose 5.5% sequentially. Operating margin was 30 basis points higher at 15.1%.

The board has cleared Rs 18 per share as special dividend.

Net new deal wins in Q2 fell to $716 million against $802 million a quarter ago. The top five clients constituted 19% of the total revenue in the quarter.

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"While market conditions evolve and supply-side challenges continue, we will strengthen our differentiated offerings to help customers in their transformation journey through our integrated and new-age solutions," CP Gurnani, MD and CEO said. 

Motilal Oswal has assigned a neutral rating to the stock and assigned a target of Rs 1,072. "We remain on the sidelines on Tech Mahindra as we feel the current valuations fairly factor in uncertainties around growth and margin. We marginally tweak our estimates to account for lower margin. Our target price implies 15 times FY24E EPS. We remain neutral on the stock," said the financial services firm. 

YES Securities has assigned an add rating to the  stock with a target price of Rs 1,226 against the current market price of Rs 1,172, implying returns of 14.5 per cent. "Employee attrition has started moderating and should support operating margin going ahead. We estimate revenue CAGR of 13.5% over FY22?24E with average EBIT margin of 13.6%. We maintain our ADD rating on the stock with target price of Rs 1,226/share at 15.5x (unchanged valuation multiple)," YES Securities said.