Tech Mahindra was in the limelight today with shares rallying 7% to a new high of ₹800 on the BSE after the IT major posted a strong third-quarter performance. The IT company, which announced its December quarter earnings after market hours on Tuesday, reported a better-than-expected net profit of ₹1,203 crore, up 27.5% year-on-year and 13% quarter-on-quarter. Revenue grew 15% year-on-year, or 3.6% quarter on quarter, to ₹8,944 crore. In dollar terms, revenue came in at $1.26 billion, up 3.5% quarter-on-quarter, while in constant currency terms, the growth was 3.6% quarter-on quarter, topping the Street’s estimates.
In the December 2018 quarter, Tech Mahindra’s operating margin also improved sequentially.
Domestic brokerage Edelweiss has revised upwards the target price higher for on Tech Mahindra to ₹1,002, from ₹970 earlier, while maintaining a ‘Buy’ rating on the stock. “Tech Mahindra reported strong Q3FY19 numbers with 3.5% QoQ USD revenue growth (Street’s 1.9% estimate) and 50bps QoQ EBITDA margin improvement to 19.3% (Street’s 19.1% estimate)," Edelweiss said in a note. “Revenue growth was well rounded across THE enterprise (up 4.1% QoQ) and telecom (up 2.5% QoQ) segments while digital growth remains healthy (up 10% QoQ; nearly 33% of revenue)," the brokerage added.
Going ahead, Edelweiss expects Tech Mahindra’s growth momentum in the telecom vertical to sustain, led by spending spends by telecom operators to modernise traditional systems as players prepare for the impending arrival of 5G.
Technology stocks were among the top performers in January with most IT companies reporting strong revenue growth coupled with a healthy deal pipeline.
For JM Financial, Tech Mahindra remains the preferred pick in the tech sector. The brokerage has revised its target price higher for ₹960 to ₹920 earlier.
“A confident management commentary, and growing news flow on the 5G theme should also attract investors’ interest," the brokerage said in a note.
During noon trade, Tech Mahindra shares were up 6% to ₹796 against a 0.70% rise in the broader Nifty index.