Tech Mahindra Lags Nifty IT Record Jump As Brokerages See Near-Term Pain
Tech Mahindra was the only Nifty ITY constituent trading lower as the stock fell as much as 5.6% during the day to Rs 1,444.25 apiece on the NSE.
Shares of Tech Mahindra Ltd. fell on Friday as brokerages see near-term pain in spite of the IT services firm's consolidated net profit in the first quarter of the current financial year meeting analysts' estimates.
The stock saw its worst intraday fall since January, even as the NSE Nifty IT hit its lifetime high of 40,852.75 points. Tech Mahindra was the only constituent that was trading lower.
Tech Mahindra Q1 FY25 Highlights (Consolidated, QoQ)
Revenue up 1.04% to Rs 13,005.5 crore (Bloomberg estimate: Rs 12,967 crore).
EBIT increased 17% to Rs 1,102.3 crore (Estimate: Rs 1,515 crore).
EBIT margin expanded 112 basis points to 8.47% (Estimate: 11.70%).
Net profit rose 30% to Rs 865 crore (Estimate: Rs 874 crore).
"We believe the company has put forth the way for growth via these operational and growth-led strategies," IDBI Capital said. However, it sees the turnaround period to increase due to upcoming softness amid seasonality.
The brokerage underlined that "execution" was the key and hence, maintains its 'hold' stance but raised the target price to Rs 1,512 from Rs 1,265 apiece earlier, implying a potential downside of 1.2%.
Motilal Oswal Financial Services Ltd. remains 'neutral' on the stock and has raised its target price to Rs 1,470 apiece from Rs 1,355, implying a potential 5% downside. "We remain on the sidelines as we feel the current valuation fairly factors in the uncertainties around growth and margin."
Nomura Research also sees faltering execution as a key risk for the company. Operationally, it said the company was at its bottom, with margin improvement happening in the current fiscal. The brokerage pointed out that Infosys Ltd. also took a three-year period for a turnaround.
It maintains its 'buy' rating and a target price of Rs 1,600 apiece. "We expect TechM to report a USD revenue decline of 0.5% in FY25F and growth of 6.1% in FY26F, with EBIT margins of 9% and 12.1% in FY25F and FY26F, respectively."
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On the NSE, Tech Mahindra's stock fell as much as 5.6% during the day to Rs 1,444.25 apiece, the lowest since July 11. It was trading 1.2% lower at Rs 1,510 per share, compared to a 0.8% advance in the benchmark Nifty at 10:30 a.m.
The share price has risen 18.91% on a year-to-date basis and 35.6% in the last 12 months. The total traded volume so far in the day stood at 1.38 times its 30-day average. The relative strength index was at 61.26.
Twenty-one out of the 46 analysts tracking the company have a 'buy' rating on the stock, 11 recommend 'hold' and 14 suggest 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential downside of 2.9%.
