Tech Mahindra shares in focus after CLSA downgrades stock to 'hold': Check new target price

The company, which began a three-year strategic restructuring under a new head recently, saw its revenues decline by 1.2 per cent to Rs 13,005 crore during the reporting quarter.

Tech Mahindra shares are in focus in Wednesday's session as the global brokerage CLSA has downgraded the IT major to 'hold' from the earlier 'outperform' rating. Furthermore, the brokerage has also slashed the target price on the stock to Rs 1,626 from the earlier Rs 1,670. The set new target implies the stock will likely remain rangebound from its current price levels. In the previous session though the stock in line with the broad-based gains in the Nifty IT pack ended over 2 per cent higher at Rs 1,628.4 per share on the BSE.

Hong Kong based brokerage made the move on the back of strong rally in the largecap IT player and amid stretched valuations. The stock in contrast to other Nifty IT index constituents has run-up sharply. Notably, in the past one year, the stock has zoomed over 34 per cent, while the Nifty IT index during the same time has rallied 36 per cent.

The brokerage further held that the company may face multiple near-term challenges, particularly in the telecom vertical. There is no announcement of any large cost optimization deals, it added.

Tech Mahindra Q1 results

Tech Mahindra reported a 23 per cent jump in its consolidated net profit to Rs 851 crore for the June 2024 quarter. The company, which began a three-year strategic restructuring under a new head recently, saw its revenues decline by 1.2 per cent to Rs 13,005 crore during the reporting quarter.

Its new managing director and chief executive Mohit Joshi said the performance in FY25 will be better than the year-ago period.

The overall costs were reduced by 2.3 per cent to Rs 955 crore, proving to be one of the major factors, along with a 40 per cent reduction in the interest expense at Rs 715 crore for the profit growth despite the revenue fall.

Tech Mahindra Limited is engaged in the business of computer programming, consultancy and related services. It's segments include Information Technology (IT) Services and Business Processing Outsourcing (BPO).

Tech Mahindra stock

The consensus recommendation from 42 analysts for Tech Mahindra is HOLD, shows the stock analysis platform Trendlyne. Furthermore, the stock is trading at a trailing twelve month (TTM) P/E of 63.3 that is below the industry median. After the company's Q1 results, ICICI Direct recommended a 'buy' on the stock with a target of Rs 1,780.

TECHM continues to remain well positioned amongst its peers to achieve both revenue and earnings growth. We believe that company’s US$ revenue will grow at CAGR of 6.4 per cent between FY24-26E but operating profit growth is likely to outpace with EBIT margin to improve from 6.1% in FY24 to 13.4 per cent in FY26E. Consequently, PAT to grow at CAGR of 60.4 per cent over FY24-26E, it added.