Tech Mahindra Stock Dips 10% Despite Strong Q2 Performance
Tech Mahindra experienced a 10% stock decline over five trading sessions following its Q2 results announcement on October 14, despite posting better-than-expected numbers. The company's EBIT margin improved to 12.10%, up 100 bps quarter-on-quarter. Total contract value reached $816 million, up 1.5% QoQ and 35.3% YoY. Quarterly revenue remained stable at $1.60 billion. Factors contributing to the stock decline include delayed project ramp-ups, US policy concerns, and downward analyst revisions. Despite the drop, analysts maintain a positive outlook with a 14% potential upside from the current trading price.
*this image is generated using AI for illustrative purposes only.
Mahindra & Mahindra , a leading Indian IT services company, witnessed a significant stock decline of nearly 10% over five trading sessions following its September quarter results announcement on October 14. This downturn came despite the company posting better-than-expected financial numbers, highlighting the complex interplay of factors affecting investor sentiment in the IT sector.
Q2 Performance Highlights
Tech Mahindra demonstrated resilience and improvement in its financial metrics for the September quarter:
| Metric | Q2 FY24 Value | Change |
|---|---|---|
| EBIT Margin | 12.10% | +100 bps (QoQ) |
| Total Contract Value | $816.00 million | +1.5% (QoQ), +35.3% (YoY) |
| Quarterly Revenue | $1.60 billion | Stable over past six quarters |
The company's EBIT margin expanded by 100 basis points sequentially, reaching 12.10% in the September quarter. This marks a significant improvement from the low of 6.10% in FY24, nearly doubling under the leadership of CEO Mohit Joshi, who took the helm in December 2023.
Factors Influencing Stock Performance
Despite the positive financial indicators, several factors contributed to the stock's decline:
Delayed Project Ramp-ups: Weak client sentiment has affected project initiations, leading to stagnant quarterly revenue around $1.60 billion over the past six quarters.
US Policy Concerns: Potential challenges related to tariffs and H1B visas have added to investor uncertainty.
Analyst Revisions: Following the results, analysts reduced earnings expectations by 2-6% for FY26 and FY27, adjusting 12-month target prices downward by 5-9%.
Future Outlook
Tech Mahindra has set a target of achieving a 15% margin by FY27. The company's improving deal wins, with total contract value reaching $816.00 million in the September quarter compared to $809.00 million in the previous quarter and $603.00 million year-ago, indicate a growing order book.
Market Sentiment
Despite the recent stock decline, analysts maintain a positive outlook:
| Current Trading Price | Average Analyst Target Price | Potential Upside |
|---|---|---|
| Rs 1,448.30 | Rs 1,651.00 | 14% |
This suggests that despite short-term pressures, there may be potential for stock appreciation based on analyst consensus.
Tech Mahindra's situation underscores the complex dynamics in the IT sector, where strong financial performance may not always immediately translate to stock market gains. Investors are advised to consider both the company's improving fundamentals and the broader market challenges when making investment decisions.
Historical Stock Returns for Mahindra & Mahindra
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
|---|---|---|---|---|---|
| +0.04% | -0.61% | +1.40% | +24.94% | +28.26% | +507.05% |
20
