Tech Mahindra, a stalwart in India’s IT services sector, has recently unveiled its financial results for the final quarter of fiscal year 2024 (FY24), which have elicited a range of responses from analysts and investors. Despite the global economic uncertainties, the stock price jumped up by 10% after the announcement of the quarterly earnings results which showed a consolidated net profit drop of 41% year-on-year, and a 6.2% decrease in revenue to ₹12,871 crore for the quarter.
Financial Results Overview
Tech Mahindra’s consolidated net profit dropped 41% year-on-year in the final quarter of FY24, reaching ₹661 crore, while revenue decreased by 6.2% to ₹12,871 crore. Despite the downturn, the company has announced a final dividend of ₹28 per equity share and fixed August 9 as the record date, with a total dividend for FY24 amounting to ₹40 per equity share.
Management’s Optimism and Vision
Tech Mahindra’s management expressed optimism for future revenue performance, citing anticipated improvements in client spending and continued digital adoption. The company outlined ambitious objectives for the next three years, aiming to surpass peers in revenue growth, achieve a 15% EBIT margin by FY27, and maintain a robust ROCE profile.
Strategic Initiatives and Objectives
Tech Mahindra will focus on scaling large accounts, winning multi-tower deals, leveraging synergies from past acquisitions, and enhancing its cost structure to achieve its goals. The company anticipates FY25 as a year of turnaround, followed by stabilization in FY26 and actual returns in FY27.
Analysts’ Views
Brokerage firms maintain a cautious outlook on the stock, highlighting challenges such as weak demand conditions and the cyclicality of Tech Mahindra’s portfolio business. While some express optimism about recent restructuring initiatives, others emphasize the need for tangible improvements before considering a re-rating.
Brokerage Recommendations
Motilal Oswal: ‘Neutral’ rating, awaiting tangible improvements before re-rating.
Nuvama Institutional Equities: ‘Reduce’ rating, citing significant near-term challenges despite achievable long-term targets.
Centrum Broking: ‘Reduce’ rating, anticipating a gradual recovery but revising downward EPS estimates for FY25 and FY26.
Systematix Institutional Equities: ‘Sell’ rating, acknowledging key upside risks but valuing the stock at a 16x FY26EPS multiple, indicating a downside from the current market price.
Summary
Tech Mahindra’s fiscal year 2024 performance reflects a challenging operating environment, but the company remains optimistic about its prospects. However, achieving its ambitious objectives outlined in its three-year roadmap, which include surpassing peers in revenue growth, achieving a 15% EBIT margin by FY27, and maintaining a robust return on capital employed (ROCE) profile, will require navigating through near-term challenges and demonstrating tangible improvements in performance and execution. Investors will closely monitor the company’s progress on these objectives and the effectiveness of its strategies in driving sustainable growth and profitability.
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