3.8% Dividend Yield: IT Stock Tech Mahindra Falls After Q3; Buy-On-Dips Opportunity, TP At Rs 1,660

Mahindra Group-backed tech giant, Tech Mahindra witnessed a sharp correction in its share price on stock exchanges despite better than expected Q3 results for FY24. TechM shares nosedived as much as 7% to hit an intraday low of Rs 1,357.35 apiece on Janaury 24. Tech Mahindra is focused on 3 tracks-revenue, margin improvement, and organization building, which is comforting for analysts as they are optimistic in long term.

On BSE, Tech Mahindra share price ended at Rs 1,321.60 apiece, down by Rs 86.15 or 6.12% with market cap of Rs 1.29 lakh crore by end of this trading week.

Tech Mahindra has a strong track record of paying huge dividends. In 2023 alone, the company delivered up to 880% dividend amounting to Rs 44 per share. On current market price, it has a dividend yield of 3.78%, which is also highest among IT and largecap stocks.

In Q3FY24, Tech Mahindra earned a consolidated net profit of Rs 510 crore, which was down by a massive 60.6% YoY but climbed by 3.4% QoQ. Consolidated revenue from operations was at Rs 13,101 crore, down by 4.6% YoY but up by 1.8% QoQ. Cash and cash equivalent stood at Rs 7,012 crore as of December 31, 2023.

In dollar terms, PAT was down by 61% YoY but up by 3% sequentially to $61 million. EBITDA dropped by 47.1% YoY but surged by 6.4% QoQ to $138 million. Further, margins expanded by 40 bps sequentially to 8.8%. In the top-line front, revenue dipped by 5.7% YoY but was marginally up by 1.1% QoQ to $1,573 million. In constant currency, revenue was up by 1.1% QoQ and down by 5.4% YoY.

Here's what brokerages tell about Tech Mahindra shares:

As per Motilal Oswa, although 3Q performance was weak, it was better than our estimates. TECHM's high exposure to the Communications vertical offers a potential opportunity, as a broader 5G rollout is likely to result in a new spending cycle in this space. It added, "Near-term growth remains weak and we await greater comfort on margins. We value the stock at 20x FY26E EPS. We maintain our Neutral rating on the stock."

Meanwhile, Emkay Global in its note said, TechM reported an improved revenue performance in Q3, with 1.1% QoQ in cc, aided by 140bps in a one-off product revenue and Comviva/Retail seasonality. Reported EBITM expanded by 70bps QoQ to 5.4% (adj. EBITM: 7%), as TechM continued with its portfolio rationalization. Management highlighted that while the overall demand environment is slightly more positive compared with the last six months, it is too early for any green shoots. The new CEO is currently in the process of defining his long-term strategy.

Emkay's note further said, "Company is now focused on 3 tracks-revenue, margin improvement, and organization building. As part of the overall turnaround plan, Management will undertake higher than usual investments to improve the company's positioning. After the recent rally in the stock price (up 10%/22% in the last 1M/3M), we see limited near-term upside and opt to wait for the new CEO's detailed strategy before taking a more constructive view. We revise FY24-26E EPS by -12% to 2%, factoring-in the Q3 performance, slower progress on margin recovery, and the lower ETR. We maintain ADD, with TP of Rs1,450/sh at 19x Dec-25E EPS."

On the other hand, Elara Capital has recommended buying with a target price of Rs 1,660 apiece, the highest among the brokerages on Tech Mahindra.

Elara's note said, "We factor in Q3 print and raise FY25E/26E EPS 7%/6% as we expect FY25 to a turnaround year with internal issues being sorted out. Expect
USD sales/ EBIT/PAT CAGRs of 5.3%/12.7% / 12.4% in FY23-26E. We retain Buy with raised TP of INR 1,660 from INR 1,360, on 20.7x (fiveyear average + 1sd; from 18.3x earlier, on a quick show of results) Dec25E EPS.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.