IT services company Tech Mahindra’s shares surged 10% in early trade even as the company reported a decline in net profit and revenue in the fourth quarter.
The company’s shares surged after its CEO and MD Mohit Joshi unveiled a three-year turnaround plan to tackle slow business growth.
Around 2.10 pm, shares of Tech Mahindra were up 8.13% at Rs 1,286.90 on the Bombay Stock Exchange (BSE).
While the company’s shares surged during intraday trading, brokerages remain cautious about its outlook, citing near-term challenges.
Brokerage firm Motilal Oswal sees some good changes happening at Tech Mahindra. It likes the new leadership and the company’s efforts to make things better, like adjusting the size of business units, investing in important clients, and setting up teams focused on specific areas.
But the brokerage remains cautious. It wants to see real results from these changes before they re-rate Tech Mahindra.
Even though the company aims to hit a 15% profit margin by FY27, without growth and immediate investments, it might be tough to see a big improvement in profits anytime soon, said the brokerage firm.
Motilal Oswal maintains a ‘neutral’ rating on the stock, with a target price of Rs 1,210 apeice. Ir has also slightly adjusted FY25/FY26 EPS estimates downward by 0-1% after the Q4 results.
Meanwhile, Nuvama Institutional Equities has maintained its ‘reduce’ rating on the stock, while acknowledging the strategy laid out by the CMD.
“While these targets are achievable, we argue the steps needed to achieve them will incur significant near-term pain,” Nuvama said in a note.
“We are trimming FY25E/26E by -2%/-1.5%. We continue to rate the stock ‘REDUCE’ with an unchanged TP of Rs 1,000, valuing the stock at 16x FY26E PE,” it added.
Centrum Broking, too, maintained a ‘reduce’ rating on the stock with a lower target price of Rs 1,194.
The brokerage highlighted challenges related to the near-term demand environment and pressure on discretionary spending by clients. The brokerage also estimates a gradual recovery in FY25, driven by the ramping up of recently signed deals.
During the last quarter of FY24, Tech Mahindra’s net profit took a hit, plunging by 41% year-on-year to Rs 664.2 crore, down from Rs 1,125 crore.
Meanwhile, the company’s total revenue also slipped by 6.2% compared to last year, totaling Rs 12,871 crore for the March quarter.
