Shares of Tech Mahindra slipped 6 per cent to Rs 1,322 on the BSE in Thursday’s intraday trade as investors booked profit in the shares after the company reported a 60.6 per cent year-on-year (Y-o-Y) decline in net profit to Rs 510.4 crore for the December quarter (Q3FY24).
Ahead of the result, the stock rallied 13 per cent in the past two weeks. It had hit a 52-week high of Rs 1,416 on January 23. That said, despite today’s decline, the stock has outperformed the market by gaining 16 per cent in the past six months, as against 6.7 per cent rise in the benchmark index.
At 09:40 AM, Tech Mahindra was quoting nearly 5 per cent lower at Rs 1,343.85 as compared to 0.32 per cent decline in the S&P BSE Sensex.
In Q3FY24, Tech Mahindra’s revenues stood at Rs 13,101 crore, down 4.6 per cent Y-o-Y. Sequentially, the revenues were up 1.8 per cent and profit was up 3.2 per cent. In constant currency (CC) terms, revenue was up 1.1 per cent quarter-on-quarter (Q-o-Q)/ down 5.7 per cent Y-o-Y at $1,573 million.
In Q3FY24, reported earnings before interest and tax (Ebit) margin stood at 5.4 per cent, up 70bp Q-o-Q. Total contract value (TCV) came in at $381 million (down 40 per cent Q-o-Q/down 52 per cent Y-o-Y), pulling down its trailing 12 month TCV/book to bill to its lowest in the last 3/5 years.
The company’s performance was impacted due the macro uncertainty and weakness in top verticals like telecommunications, BFSI, and retail.
The management said the quarter was a mixed outcome, with growth in the Manufacturing and Healthcare segments, but muted spending in areas like Communications, BFSI, and Hi-tech. While this dichotomy in the markets will take its own time to settle, the management said the company is focusing internally on realigning under the new structure and strengthening the foundations of organisation.
Meanwhile, Tech Mahindra has absorbed the wholly owned subsidiaries; Perigord Premedia (India) Pvt. Ltd., Perigord Data Solutions (India) Pvt. Ltd., Tech Mahindra Cerium Pvt. Ltd. & Thirdwave Solutions Ltd. via a modified scheme of merger with the company, it said in an exchange filing.
Tech Mahindra had another quarter of low profitability, with 7.0 per cent adjusted Ebit margin (excluding restructuring and other one-time costs), down 30bp Q-o-Q/500bp Y-o-Y, and slightly below our estimates, Motilal Oswal Financial Services (MOFSL) said in its result review report.
The brokerage, however, said it remains positive about the restructuring initiatives at Tech Mahindra under the new leadership. The recent steps, including right-sizing SBUs, investing in key accounts, establishing vertical delivery teams, and prioritising employee investments, are moves in the right direction, it said.
That said, MOFSL expects to see the positive impact of these actions only gradually, which can result in near-term misalignment with investor expectations, particularly in terms of profitability.
With the management committing to incremental clarity post Q4 earnings, April remains the key to any view change, the brokerage firm said with a ‘Neutral’ rating on the stock.
First Published: Jan 25 2024 | 10:12 AM IST