homemarket Newsstocks NewsTech Mahindra clocks best revenue growth in 7 years but D Street unimpressed
market | May 16, 2022 12:14 PM IST

Tech Mahindra clocks best revenue growth in 7 years but D-Street unimpressed

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Shares of Tech Mahindra fell as much as 3.82 percent on Monday even as the company’s fourth quarter earnings that came in line with analyst expectations. However, margin fell short of estimates, owing to higher employee expenses and lower utilisation. Morgan Stanley too kept its overweight rating on the stock and cut target price to Rs 1,650 from Rs 1,800 per share. The brokerage said that the attractive valuation keeps company as their top pick in IT pack.

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After announcing the March quarter results, Tech Mahindra Managing Director & Chief Executive Officer CP Gurnani said the IT firm put up its best performance in terms of growth in seven years. Still shares of India’s fifth-largest software exporter Tech Mahindra fell as much as 3.82 percent to Rs 1,156.4 on Monday.
Though the company’s fourth-quarter earnings were mostly in line with analyst expectations, the margin fell short of estimates due to higher employee expenses and lower utilisation.
The stock has been losing for the last six days and has fallen 7.47 percent. At 11 am, shares of Tech Mahindra recovered some of the losses and were trading at Rs 1,189.55, down 12.75 points, or 1.06 percent lower on the BSE.
Gurnani, who has recently been reappointed as CEO till December 2023, said: "17.3 percent year-on-year (YoY) growth reflects our commitment to guidance, employees, and the value that we create for the customers.”
Tech Mahindra's attrition rate stood at 24 percent, unchanged from the previous quarter, while the total headcount stood at 151,173, up 4.2 percent quarter-on-quarter (QoQ).
"Our improved growth performance reflects the power of Human-Centered experiences, a strong focus on innovation and our ability to create a strong customer and partner ecosystem," Gurnani said.
Here's what Tech Mahindra's fourth-quarter earnings look like:
Gurmeet Chadha, Co-Founder & CEO of Complete Circle Consultants, said Tech Mahindra's margin headwind could be temporary and valuation wise, the company is one of the most reasonable amongst the larger IT names.
"This is a slightly more interesting play in IT space because 40 percent plus is through the communication vertical. So if you see their deal print, it's more related to the modernisation of legacy infrastructure, 5G, customer care, automation and cloud," said  Chadha.
What brokerages have to say:
JPMorgan has maintained its overweight rating on Tech Mahindra and cut the target price to Rs 1,650 from Rs 1,800 per share. The brokerage said there was an impressive growth and deal momentum, margin crimp and undemanding valuations.
Morgan Stanley, too, kept its overweight rating on the stock and cut the target price to Rs 1,650 from Rs 1,800 per share. The brokerage said that the attractive valuation keeps the company as their top pick in the IT pack. There is a robust broad-based revenue growth outlook and have levers to mitigate cost headwinds through FY23, it further said.
Citi maintained its buy rating on the stock but cut its target to Rs 1,400 from Rs 1,715 per share. While Macquarie kept its outperform rating on Tech Mahindra's stock with a target at Rs 1,710 per share. The margin miss was largely due to strong hiring, while direct costs were 2.2 percent higher than expected in rupee terms, the brokerage added.
 
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