Analysts differ on charting Tech Mahindra's course

Mumbai: Tech Mahindra, India's fifth largest IT services company, reported mixed-bag earnings for the three months that ended December 2022, leaving analysts divided over the company's stock.

Nomura remained bullish on the stock but others like Morgan Stanley, CLSA, JP Morgan, and HSBC held a more conservative view.

Nomura told its clients to buy the stock with the potential to earn 24% from current levels.


Jefferies raised earnings estimates and price targets to account for higher margins but remained uncertain over the growth outlook. "While TechM has delivered an encouraging margin performance, sharp decline in headcount raises concerns on its growth," Jefferies said.

Of the 35 analysts that reviewed the earnings, 16 have a bullish view, while another 16 remain 'neutral'. Three of them have a 'sell' call. On aggregate, analysts cut consensus price targets by 2.05% to ₹1,128.57, showed a Bloomberg poll of analysts.

Tech Mahindra announced deals worth $795 million during the quarter, the eighth straight quarter where it had clocked deals over $700 million. However, as order bookings look healthy, revenue growth may get impacted due to a lower number of smaller engagements as highlighted by the management.

Shares of Tech Mahindra declined 1.93% on the NSE to close at ₹1,016.10 per share. The stock fell as much as 4% during Tuesday's trading after revenue beat analyst expectations but net profit was below estimates.

Tech Mahindra made an all-time high of ₹1,838 in December 2021 but lost half its value by June 2022 as tech companies worldwide reckoned with a hike in interest rates and demand slowdown. Since June, the stock has traded between ₹1,200 and ₹900. Motilal Oswal saw near-term growth to remain weak and wanted greater comfort on the margins for any re-rating.

Morgan Stanley expected the sentiment to be negative in the near term even as the valuation is inexpensive and high free cash flow yields provide some cushion to the price. "TechM faces both lack of demand visibility and limited confidence on margins rebounding to 14% anytime soon. Consensus earnings estimates have been cut over the last few quarters, and after this disappointment and weak commentary, the earnings downgrade cycle could continue," the firm said.