Whalesbook
Revenue at Tech Mahindra reached INR 1,43,932 Million, climbing 2.8% quarter-on-quarter and 8.3% year-on-year. This performance surpassed expectations by 4.1%, fueled by widespread gains across its communications, manufacturing, and retail sectors, and a robust 11.2% year-on-year rise in the European market. Earnings Before Interest and Taxes (EBIT) registered INR 18,919 Million, a substantial 40.1% increase from the prior year. This sequential improvement was attributed to refined operating discipline, effective pricing strategies, and the ongoing benefits derived from the Project 40s efficiency initiative, pushing EBIT margins to 13.1%. Margin expansion was further bolstered by enhanced fixed-price project productivity, volume growth, and a notable increase in IT utilization to 86.6% during the quarter.
Profit Dip and Rating Downgrade
Profit After Tax (PAT) stood at INR 11,220 Million, reflecting a 6.1% decrease from the previous quarter, though it was up 14.1% year-on-year. This QoQ decline was primarily due to a one-time exceptional provision of INR 2,724 Million (USD30 Million) recorded in compliance with new wage code notifications. The IT services segment contributed approximately 84% of total revenue, with its segment revenue rising 2.6% QoQ to INR 1,20,756 Million. The BPS segment saw a 4.0% QoQ growth to INR 23,176 Million.
Outlook and Valuation
Analysts at Deven Choksey have rolled their valuation basis to December 2027 estimates. They currently value Tech Mahindra at 23.0 times its earnings, implying a target price of INR 1,805. However, acknowledging a significant run-up in the stock's price, the firm has downgraded its recommendation from 'Buy' to 'Accumulate' at current trading levels. This suggests investors should consider holding or adding to existing positions cautiously rather than initiating new large buys.