Tech Mahindra share price slumps after weak Q1 results; should you buy or sell stock?

By: |
July 31, 2019 3:51 PM

Shares of India's private sector IT firm Tech Mahindra plunged on Wednesday, after the firm reported tepid Q1 results in the Apr-June period.

Such large-scale cash withdrawals, most without any legitimate economic prompted the government to impose a 2% TDS on such withdrawals. (Representational image)Tech Mahindra shares slumped more than 5% to hit intra-day low of Rs 607.90 on BSE.

Shares of India’s private sector IT firm Tech Mahindra plunged on Wednesday, after the firm reported tepid Q1 results in the Apr-June period. Tech Mahindra shares slumped more than 5% to hit intra-day low of Rs 607.90 on BSE. Tech Mahindra has reported a 15.3% decline in its Q1FY20 net profit at Rs 959 crore against Rs 1,132.5 crore in the quarter ended June 2019. The firm’s revenue was down 2.7% at Rs 8,653 crore against Rs 8,892.3 crore and dollar revenue was down 1.6% at $1,247.1 million against $1,267.5 million in the previous quarter.

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Taking stock of the reported results, global firm Morgan Stanley said that Q1 revenue was in-line with its estimates, but the margin was below expectation. A robust deal pipeline going forward gives confidence that the growth trajectory is likely to be strong going forward. The firm has cut FY20, 21 and 22 estimates by 5%, 4% and 4% respectively. Morgan Stanley has a target stock price of Rs 765, with an overweight rating.

During the quarter ended June 2019, EBITDA (Earnings before interest, tax, depreciation and amortisation) fell 3.2% on-year to Rs 1,314 crore, while operating margins dropped 120 basis points (bps) to 15.2 per cent on yearly basis. Global firm CLSA said that revenue and margin missed estimates, even as the deal outlook looks soft. ” Deals have piled up and one-off costs have bunched up,” noted CLSA. The deal wins should translate to a growth recovery over Q2-Q4. Margin resilience is likely to be tested more, said the firm. Tech Mahindra is faced with a lot of challenges, transition costs and initial deal margin deflation. CLSA has cut Tech Mahindra’s EPS estimates by 6-10% over FY20-22. CLSA has an outperform rating on the stock, with a target price of Rs 740. Following the recent correction in the shares, Tech Mahindra remains inexpensive at a PE of 12, based on FY21 expected earnings, noted CLSA.

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