Tech Mahindra shares fall despite largely in-line results; here's what investors are really worried about

Tech Mahindra shares succumbed to selling pressure on Tuesday, as India's fifth largest IT services company by sales reported sequential revenue growth of 0.2 per cent that failed to impress the Street. In a conference call with investors, the management of the IT major highlighted concerns about the macroeconomic environment and mentioned signs of a slowdown in the banking, financial services and insurance (BFSI) segment. 

Tech Mahindra's revenue growth in constant currency terms — which means income without the impact of currency fluctuations — fell short of peers Tata Consultancy Services (TCS) and Infosys's 2.2 per cent and 2.4 per cent respectively. 

The latest earnings report from Tech Mahindra (TECHM) also fuelled worries about attrition in the sector. 

Indian IT companies have been struggling against margin pressure owing to higher employee costs in a bid to tackle elevated levels of attrition.

Tech Mahindra said its total headcount reduced 4.2 per cent sequentially to 1,57,068. 

The company's topline and bottomline, however, met analysts' estimates.  Tech Mahindra reported a 0.9 per cent quarter-on-quarter increase in net profit to Rs 1,296.6 crore for the October-Decemeber period, and growth of 4.6 per cent revenue to Rs 13,734.6 crore. 

Its margin — a key measure of profitability — improved by 80 basis points sequentially to 12 per cent. 

According to Zee Business research, Tech Mahindra's quarterly net profit was estimated at Rs 1,300 crore, revenue at Rs 13,500 crore and margin at 11.7 per cent. Its revenue in dollar terms expanded 1.8 per cent to $1,668 million compared with the three months. 

What brokerages recommend on Tech Mahindra shares after the IT major's Q3 results

Brokerages have mixed views on Tech Mahindra, and lined up target prices to the tune of Rs 975-1,260 for the stock after the IT major's earnings announcement, implying between downside of as much as 5.9 and upside of as high as 21.6 per cent compared with its closing price on Monday. 

Nomura maintained a 'buy' rating on TechM with a target of Rs 1,260 — implying potential upside of 21.6 per cent. 

HSBC retained a 'hold' call with a target of Rs 975, suggesting a 5.9 per cent downside.  

CLSA continued with a 'reduce' on the stock with a Rs 30 raise in its target price to Rs 1,100.​

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