Tech Mahindra Shares Fall Over 6% After Q3 Profit Missed Estimates

Shares of Tech Mahindra Ltd. fell over 6% on Thursday after its third-quarter profit missed analysts' estimates.

The company's net profit rose 3.34% year-on-year to Rs 510.4 crore in the quarter ended December, according to an exchange filing. That compares with Bloomberg's net profit estimate of Rs 663.3 crore.

Revenue growth at Tech Mahindra returned after two quarters, as the company managed to recoup operational profitability.

Tech Mahindra Q3 FY24 Earnings Highlights (Consolidated, QoQ)

• Revenue up 1.84% at Rs 13,101.3 crore (Bloomberg estimate: Rs 12,801.10 crore).

• Ebit up 53.83% at Rs 703.2 crore (Bloomberg estimate: Rs 780.4 crore).

• Ebit margin up 181 basis points at 5.36% (Bloomberg estimate: 6.1%).

• Net profit up 3.34% at Rs 510.4 crore (Bloomberg estimate: Rs 663.3 crore).

The weak deal wins and low profitability will add to the pressure on growth pickup in FY25, as it leaves limited flexibility for the management to be aggressive on growth opportunities, according to Motilal Oswal Financial Services Ltd.

The combination of low profitability (adjusted) and elevated operational metrics (high utilisation, low attrition, and low sub-contractor expense) imply limited immediate benefits from margin improvement initiatives, something which Tech Mahindra's management also indicated in its commentary, the brokerage said.

Shares of the company fell as much as 6.24%, the lowest since April 17, 2023, before paring loss to trade 4.58% lower at 9:46 a.m. This compares to a 0.39% decline in the NSE Nifty 50.

The stock has risen 27.81% in the last 12 months. Total traded volume so far in the day stood at 6.8 times its 30-day average. The relative strength index was at 56.59.

Of the 42 analysts tracking the company, 15 maintain a 'buy' rating, 11 recommend a 'hold,' and 16 suggest a 'sell', according to Bloomberg data. The average 12-month analysts' consensus price target implies a downside 4.4%.