Shares of a large-cap IT company slumped 5.3 percent to reach an intraday low of ₹1,082.30 apiece after a poor show in its Q1FY24 results (April to June 2023). At 12:36 PM, its shares were trading at ₹ 1118.25 per share.
According to an exchange filing, Tech Mahindra’s profit decreased by 38.68 percent to ₹ 703.60 crores in Q1FY24, as compared to ₹ 1,147.50 crores in the same quarter last year. However, its revenue climbed 3.55 percent to ₹ 13,159.00 crores in Q1FY24, as compared to ₹ 12,707.90 crores in the corresponding period last year.
“Due to the sharp dip in revenue, Tech Mahindra (NS: TEML ) also saw a steep fall in profitability, exacerbated by a 200bp one-time impact from bankruptcy of a client. We expect the company’s profitability to improve from 2Q onward, partially through sharp cost control and headcount cuts despite high utilisation,” Motilal Oswal (NS: MOFS ) Financial Services said in a report.
Motilal Oswal expects a potential for performance improvement after the leadership refresh in June ’23, however, it believes that this will take time due to macro headwinds and limited flexibility to invest in growth as its profitability is weak currently.
Kotak Institutional Equities has downgraded the IT stock to reduce from add. Moreover, it lowered the target price to ₹ 1,100 a share from ₹ 1,143 a share.
ICICI Securities (NS: ICCI ) has reiterated its sell rating with a target price of ₹ 900 a share. Meanwhile, JM Financial (NS: JMSH ) maintained its hold rating and cut the target price by 7 percent to ₹ 1060 a share.
Tech Mahindra’s EBIT (Earnings Before Interest and Taxation) fell 36.5 percent year on year (YoY) to ₹ 891.40 crores, as compared to ₹ 1,403.40 crore in the year-ago quarter. Moreover, its EBIT margin fell sharply to 6.8 percent in the latest quarter, as compared to 11 percent in the corresponding quarter a year ago.
The IT major recorded $359 million in net new deal wins, which is comparatively lower than $802 million recorded in the same quarter last year.
“Our results this quarter reflect the uncertainty in the global economy and the IT sector. We are confident that we have the right strategy and the right team to overcome this temporary setback and deliver long-term value for our customers and shareholders,” said CP Gurnani, Managing Director & Chief Executive Officer of Tech Mahindra.
With a market capitalization of ₹ 1,11,433 crores, Tech Mahindra is a large-cap company. It has an ideal return on equity of 17.63 percent and an ideal debt-to-equity ratio of 0.10. Its shares were trading at a price-to-earnings ratio (P/E) of 20.96, which is lower than the industry P/E of 26.14, indicating that the stock might be undervalued as compared to its peers.
The company’s promoters hold a 35.16 percent stake in it, followed by foreign institutions with 25.69 percent, retail investors with 13.59 percent, mutual funds with 12.83 percent and other domestic institutions with 12.73 percent.
Written by Simran Bafna
The post Large cap IT stock slumps up to 5% after a poor show in its Q1; Check the results here appeared first on Trade Brains.
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