Tech Mahindra Q2 Results Review- Centrum Maintains 'Add' Rating On The Stock, Revises Target Price; Here's Why

Centrum Broking Report

Tech Mahindra Ltd. reported broadly inline performance for the quarter. It reported revenue of Rs 133.1 billion( up 2.4% QoQ in INR terms, up 1.9% QoQ in USD terms). The sequential growth was led by communication( up 2.7% QoQ), hitech and media (up 5.7% QoQ), retail and transportation( up 5.6% QoQ); While, manufacturing( down 4.0% QoQ) and healthcare (down 1.8% QoQ) had weak performance.

In terms of geographical breakup, Americas declined by 0.7% QoQ, Europe increased by 4.6% QoQ and rest of world increased by 5.0% QoQ. The cc growth was 0.7% QoQ in cc terms. Ebit margin improved by 114 bps QoQ to 9.6%, led by positive operating leverage. Reported deal total contract value of $603 million versus $534 million in Q1 FY25. Total headcount grew by 6,653( ~4.5% QoQ) employees to 154,273 employees. Attrition increased by 1% QoQ to 11%.

Offshore effort mix grew 90 bps QoQ to 76.3%. No of active clients increased by 13 QoQ to 1,178 clients. Declared interim dividend of Rs 15/ share.

The near term business environment remains similar to Q1 FY25 with muted discretionary tech spending by clients. However, there is some uptick in the business outlook for the BFSI segment. It remains focused on increasing its win rates for large deals even as the near term focus is on margin improvement.

We expect revenue/Ebitda/PAT to grow at 9.1%/36.1%/53.2% over FY24-FY27E. We have revised our FY25E/FY26E/FY27E EPS by +0.2%/+0.4%/NA.

We roll over to Sep’26E for valuation and maintain Add rating with revised target price of Rs 1,803 (versus Rs 1,629 earlier) at PE multiple of 22 times (unchanged) on Sep’26E EPS.

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