Shares of Tech Mahindra rallied nearly 9% on Wednesday to become the best performer on Nifty50 this year, after the company posted a better-than-expected net profit for the quarter ended September 2018.
Tech Mahindra stock, which was an under-performer for the last three years, has gained 47.6% so far this year against the Nifty loss of 1.4%. Software exporters dominate the list of star performers in 2018 as a weaker rupee boosted earnings outlook for the sector. While TCS rose 43.5% since the beginning of the year, Infosys has put on another 31.7% during the same period.
The rally in the stock has swelled the market capitalisation of Tech Mahindra by Rs 5,768 crore. As of Wednesday’s close, the country’s fifth-largest IT services company boasts a market value of Rs 72,977 crore.
Tech Mahindra reported a net profit growth of 27.3% at Rs1,064 crore in Q2 against the Bloomberg consensus estimate of `1,013 crore. The Ebit margin expanded by 230 bps on a q-o-q basis to 15.3% whereas revenue rose 0.40% sequentially in constant currency terms. The expansion in margin was primarily led by operational efficiencies and currency tailwinds.
Analysts were quick at revising the target prices for the stock. While CLSA upgraded the stock to “outperform” from “underperform”, Macquarie upped its recommendation on the stock to “outperform” from “neutral”.
Macquarie raised its 12-month target price to Rs 830 per share from the earlier target price of `820 per piece. The new target price implies a 21% increase from the Tuesday’s close.
Citi, which upgraded its recommendation from “sell” to “neutral”, observed good growth in telecom business after many quarters, adding “Decent improvement in margin on a q-o-q basis, aided by currency and lack of visa costs partly, and large deals helped deliver strong performance.”
As on Wednesday, 80.4% of the 46 analysts that track Tech Mahindra had a “buy” recommendation on the stock, with Goldman Sachs having a one-year price target of `1,063 per share, compared to the closing price of Rs 743.90.