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Tech Mahindra shares rise 9% after Q1 results. Should investors buy, sell, or hold?

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Tech Mahindra reported a 30 percent rise in net profit for the quarter ended June 30. Its net profit rose to Rs 1,353 crore from Rs 1,081 crore in the corresponding quarter of the previous fiscal.

Tech Mahindra shares rise 9% after Q1 results. Should investors buy, sell, or hold?
The share price of information technology firm Tech Mahindra rose 9 percent on Friday after the company reported a 30 percent rise in net profit for the quarter ended June 30. Its net profit rose to Rs 1,353 crore from Rs 1,081 crore in the corresponding quarter of the previous fiscal.
The stock was trading 9 percent higher at Rs 1,229 on BSE at 12 pm..
It also reported a 5 percent increment in its revenue to Rs 10,197 crore from Rs 9,729 crore, quarter-on-quarter (QoQ). Its dollar revenue was up by 4.1 percent to $1,383 million from $1,329 million in the previous quarter.
Q1 results highlights
  • Constant currency revenue growth stood at 3.9 percent -- 1.5 percent higher than the estimated growth
  • Operating performance weakened as earnings before interest and tax (EBIT) declined 3.6 percent to Rs 1,603 crore
  • EBIT margin narrowed to 15.2 percent from 16.5 percent QoQ
  • It added 5,200 employees in Q1, with 70 percent of them in the Business Process Services (BPS) vertical
  • Should investors buy, sell, or hold Tech Mahindra stocks? Here's what brokerages say
    Citi
    Citi maintained its 'buy' call on the company with a target price of Rs 1,380 per share. It said the company has reported good first-quarter earnings with the revenue and EBIT above expectations.
    The company's total contract value was strong at $185 million for the second quarter in a row, the brokerage said. The company's attrition rate increased to 17 percent in the last twelve months, while it saw higher subcontractor costs in the first quarter.
    Citi has raised FY22/23 EPS estimate by 3/4 percent and said that the company remains one of its top picks.
    Bernstein
    Bernstein has an 'outperform' call on the stock and has raised target price to Rs 1,330 from Rs 1,200 per share on the back of strong revenue and margin in the first quarter.
    The brokerage said the IT firm has healthy deal wins and maintains a strong growth outlook for FY22. The brokerage has increased the FY22/23 EPS estimates by 4.3/4 percent and margin outlook for FY22 to 15 percent.
    Motilal Oswal
    Motilal Oswal has a 'neutral' call on the stock with a target price of Rs 1,220 -- 8 percent higher than its current market price of Rs 1,128.
    The brokerage expects the company to deliver revenue growth of 13 percent in FY22, but "it will be the weakest among our large-cap coverage universe", it said.
    While the brokerage expects the company to deliver stable-to-improving margin performance over the next three quarters, the higher attrition rate and utilisation remain a key risk on the downside for margin.
    JPMorgan
    JPMorgan is 'overweight' on Tech Mahindra with a target price of Rs 1,250 on the back of a strong Q1 print with a beat across revenues, margins, and profits. It said the net new prints were also healthy at $815 million.
    Goldman Sachs
    Goldman Sachs has a 'neutral' rating on the stock with the target price at Rs 1,059 per share. The brokerage said the company has done better than expectations in this quarter. While it has increased Tech Mahindra's EPS and target estimates, it has chosen to stay on the sidelines given the lack of broad-based digital capabilities.