Tech Mahindra share price skyrockets 10% after Q4 results. Should you buy on the rise? Here’s what experts say

Tech Mahindra surged 10% in intraday trading to 1309/share despite lackluster financial results for Q4 FY24 and FY24. The company aims for ambitious objectives by FY27, but brokerage firms like Nuvama, Centrum, and Systematix maintain 'Reduce' or 'Sell' ratings due to near-term challenges.

A Ksheerasagar
First Published26 Apr 2024, 09:37 AM IST
Tech Mahindra logo is seen on its office building in Noida on the outskirts of New Delhi
Tech Mahindra logo is seen on its office building in Noida on the outskirts of New Delhi(REUTERS)

Despite weak financial results, Tech Mahindra, India's fifth-largest IT company by market capitalisation, saw a remarkable 10% surge in today's intraday trading, reaching 1,309 per share. The market's positive response underscores confidence in the company's ambitious plans for the future.

However, brokerage firms continue to maintain a cautious outlook on the stock, citing near-term challenges.

The company released its financial results for Q4 FY24 and the full fiscal year FY24 post-market hours on Thursday, falling short of street estimates. In Q4 FY24, its consolidated net profit plummeted nearly 41% to 661 crore, while revenue declined by 6.2% year-on-year to 12,871 crore. 

Also Read: Tech Mahindra targets 2.5x margin growth by FY27 amid drastic profit decline

For the full FY24, the consolidated net profit saw a sharp decline of 51.2% year-on-year to 2,358 crore, with revenue standing at 51,996 crore, marking a 2.4% decrease over the previous fiscal year.

Despite the significant profit decline, the company outlined ambitious objectives for the next three years. Management revealed its vision for FY27, aiming to surpass peers in revenue growth, achieve a 15% EBIT margin by FY27, maintain a 30%+ ROCE profile, and return >85% of FCF by FY27. 

Key focuses include scaling large accounts, winning multi-tower deals, leveraging synergies from past acquisitions, enhancing the cost structure, and achieving profitable and consistent growth. The aspiration is to rank among the top 3 IT services companies in terms of margins post-FY27.

Also Read: Q4 Results: Tech Mahindra declares final dividend of 28 per equity

Motilal Oswal, a domestic brokerage firm, expressed optimism about the restructuring at TECHM under new leadership, viewing recent initiatives positively, such as SBU right-sizing, investments in top accounts, the establishment of vertical delivery teams, and employee investments. 

However, the brokerage remains cautious, awaiting tangible improvements from the restructuring and revamped strategy before considering a re-rating. Despite the management's target of achieving a 15% EBIT margin by FY27, the absence of growth and near-term investments may hinder significant margin improvement in the short term. 

Consequently, the brokerage maintains its 'Neutral' rating on the stock, with a price target of 1,210 apiece, and slightly adjusts FY25/FY26 EPS estimates downward by 0-1% post the 4QFY24 results.

Nuvama Institutional Equities: Continues with the 'Reduce' rating 

"The new CEO, Mr Mohit Joshi, laid out his FY27 strategy—to take TechM ahead of peers’ average growth and to a 15% EBIT margin. While these targets are achievable, we argue the steps needed to achieve them will incur significant near-term pain."

"We are trimming FY25E/26E by -2%/-1.5%. We continue to rate the stock ‘REDUCE’ with an unchanged TP of Rs1,000, valuing the stock at 16x FY26E PE," said Nuvma.

Centrum Broking: Maintains 'Reduce' Rating

Centrum Broking has reiterated its 'Reduce' rating on the stock, citing a challenging near-term demand environment and pressure on discretionary spending by clients. The brokerage foresees a gradual recovery in FY25, driven by the ramping up of recently signed deals. 

Also Read: FPIs buy cyclicals like capital goods, auto stocks sell defensives

It expects revenue, EBITDA, and PAT to grow at 8.2%, 45.1%, and 64.2% over FY24-FY26E. However, Centrum has downwardly revised its FY25E/FY26E EPS by 7.0%–7.1%. The brokerage maintains its target price for the stock at 1,194 (revised from 1,285 earlier), applying a PE multiple of 17x (unchanged) on FY26E EPS.

Systematix Institutional Equities: Maintains 'Sell' rating

The stock is trading at a 31.7x 1-year forward multiple, representing a 66% premium compared to its last 10-year historical valuations. The brokerage values the stock at 16x FY26EPS, setting a target price of 1,005 per share, indicating an 18% downside from the current market price (CMP). 

However, it acknowledges that the recovery in revenue growth and TCV numbers, along with the company returning to a growth trajectory and significant improvement in EBIT margins, pose key upside risks to its call and estimates.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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First Published:26 Apr 2024, 09:37 AM IST
HomeMarketsStock MarketsTech Mahindra share price skyrockets 10% after Q4 results. Should you buy on the rise? Here’s what experts say

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