Broker’s call: Tech Mahindra (Sell)

Target: ₹1,265

CMP: ₹1,321.60

In Q3FY24, Tech Mahindra Ltd reported revenue of ₹13,101 crore, up 1.8 per cent on a q-o-q basis, which stood above our expectations. However, revenue de-grew by 4.6 per cent on a y-o-y basis and stood below our expectations. The company posted an operating profit of ₹703 crore, reporting a growth of 15.9 per cent on a q-o-q basis.

The company’s operating margins, while improving by 70bps, stood below our expectations. The marginal growth was largely led by moderated SG&A expenses and a favourable currency mix. The company’s net profit stood at ₹510 crore, registering a growth of 3.3 per cent q-o-q.

From a long-term perspective, we believe Tech Mahindra is sorting out the client specific engagement issues on the verticals front and the deal pipeline remains sturdy. However, rising concerns over the prospects of large economies along with prevailing supply-side constraints pose uncertainties over the company’s short-term growth rates.

We assign a 18x P/E multiple to its FY26E earnings of ₹71/share to arrive at a TP of ₹1,265. Hence, we recommend a Sell on the stock. We belive that the recent run up in the stock price already factored in the valuation.

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