Q4FY23 Review: Tech Mahindra: Key clients continue to drag growth

28 Apr 2023 , 10:57 AM

Tech Mahindra reported Q4FY23 revenue growth of 0.3% cc QoQ (6.3% cc YoY), broadly in line with estimates of IIFL Capital Services. Growth moderated across Enterprise (-0.6% QoQ in USD) and Telecom (+0.8% QoQ in USD). EBIT margin declined to 11.2% (-80 basis points QoQ), below IIFL Capital Services’ estimate of 12.4%, as benefits from lower sub-contracting costs were offset by FX and higher SG&A expenses. Net headcount declined for a second straight quarter by 4.7k sequentially (-3% QoQ) in Q4. Deal wins were soft at USD592 million (-11% TTM YoY). 

Management indicated that the pipeline remains healthy, however decision-making cycles have become longer. Tech Mahindra expects growth to remain subdued in H1FY24, due to macro uncertainty and recover from H2. 

Analysts at IIFL Capital Services have reduced their FY24/25 EPS estimates by up to 7%, on lower revenue and margin forecasts. Their 12-month Target Price stands reduced to Rs 1,100 (was Rs 1,200), pegged at 16x 2-year forward EPS. Analysts at IIFL Capital Services forecast Tech Mahindra to deliver USD revenue/EPS CAGR of 7%/10% over FY23-25. They have maintained their Add recommendation on the stock as risk-reward is balanced, given the modest growth outlook being priced in the valuations as the stock is trading at 14.5 times FY25 estimated P/E.