Tech Mahindra (TM) reported a disappointing performance for the quarter ended December 2008 as revenues went down 2.8% q-o-q to Rs11.3 billion, owing to a 3% decline in the sales volume.
In USD terms, revenues declined substantially by 14% q-o-q due to a sharp depreciation in the GBP vis-à-vis the USD.
The EBITDA margin improved slightly by 10 bps (q-o-q) to 28.1% post one-time tax reversal of Rs673 million in the last quarter.
Although we have cut our target price to Rs309 because of the deteriorating demand outlook and high revenue concentration, we maintain a BUY rating on the stock.
This is attributed largely to TM’s large order book and strong balance sheet. Besides, we believe that the current price correction to the stock is overdone.