Tech Mahindra shares: Should IT stocks be a buy after Q3 results?

“Tech Mahindra 3Q results were in line, with growth driven by communications and BPO. The company’s outlook is in line with our sector trend of macro impact on demand, pullback in small deal flows, top client moderation and moderation in BFSI/hitech. We see the potential for similar cost aggression as seen in previous instances of margin erosion in FY2017/FY20, where margins improved due to layoffs/low or no pay hikes.”

for now, Tech Mahindra With an implied USD revenue CAGR of 5.1% over FY 2022-32E, remains a strategic play on margin recovery available at reasonable valuations. More disciplined execution required for clarity on management change and structurally positive stance, added the brokerage which has maintained its buy rating on Tech Mahindra shares with target price 1,190 each.

“TechM’s 3QFY23 revenue growth was in line; However, 60bps QoQ margin expansion and 1.3 billion FX gain outpaced profit. While the TCV of US$795m was healthy, the sharp drop in workforce does not bode well for its growth outlook. We raise our estimates by 1-5% to factor in higher margins but continue to hold with the revised PT Global brokerage Jefferies said a 1,030-based 14x PE gave an uncertain growth outlook.

IT companyRohit Anand, chief financial officer (CFO), attributed the margin impact to pressure on the supply side, with higher wages affecting profitability.

“The management highlighted that despite order bookings being healthy, revenue growth could be impacted due to lower occupancies. Tech Mahindra is also seeing pressure in its core markets and has called a marked slowdown in hi-tech. amidst an uncertain landscape. TechM’s employee base decline of 6.8K — its biggest decline in a decade — doesn’t bode well for its growth outlook,” Jefferies said.

The views and recommendations given above are those of individual analysts or broking companies and not of Mint.