Tech Mahindra shares surge 10%: What driving the rally?
Tech Mahindra, a prominent IT firm in India, saw its share price surge by 10% during intraday trading to ₹1,309 per share. This rise occurred despite the company's underwhelming financial performance for Q4 FY24 and FY24. The market's confidence seems to be buoyed by the firm's future plans, notwithstanding the recent results. However, brokerage firms including Nuvama, Centrum, and Systematix are advising caution and maintaining 'Reduce' or 'Sell' ratings due to potential short-term challenges.
Tech Mahindra's Q4 FY24 results
In Q4 FY24, Tech Mahindra reported a significant 41% drop in consolidated net profit to ₹661 crore. The company also experienced a 6.2% year-on-year decrease in revenue, which stood at ₹12,871 crore. For the full fiscal year of FY24, the consolidated net profit plummeted by 51.2% year-on-year to ₹2,358 crore. Revenue for the same period was ₹51,996 crore, marking a 2.4% decrease from the previous fiscal year.
Tech Mahindra's ambitious targets for the next three years
Despite recent financial setbacks, Tech Mahindra has outlined ambitious targets for the next three years. The management aims to outperform competitors in revenue growth and achieve a 15% EBIT margin by FY27. They also plan to maintain a ROCE profile above 30% and return more than 85% of FCF by FY27. The company's primary focus areas include expanding large accounts, securing multi-tower deals, capitalizing on synergies from past acquisitions, improving cost structure, and ensuring profitable and consistent growth.
What do brokerage firms have to say about Tech Mahindra?
Brokerage firm Motilal Oswal has expressed optimism about Tech Mahindra's restructuring under new leadership but advises caution until tangible improvements from the restructuring and revamped strategy are evident. Nuvama echoed this sentiment, stating that while the company's targets are achievable, the steps needed to reach them may cause significant short-term discomfort. Centrum Broking has maintained its 'Reduce' rating on the stock, citing a challenging near-term demand environment and pressure on discretionary spending by clients.
