Tech Mahindra shares zoom 7% post Q2 earnings, here's what brokerages say

Shares of Tech Mahindra Limited rose 7 per cent to hit an all-time high of Rs 1629.4 on the Bombay Stock Exchange (BSE) after the company posted a healthy set of numbers for the quarter ended September 2021.
 
The company reported a consolidated profit of Rs 1,339 crore for the quarter ended September 2021 compared with a profit of Rs 1,065 crore in the year-ago period. Revenue from operations grew 16 per cent to Rs 10,881 crore in the September-ended quarter against Rs 9,372 crore a year ago.

The stock opened 3 per cent higher at Rs 1,569.70 against the previous close of Rs 1,524.40 on BSE. With a market capitalisation of more than Rs 1,50,000 crore, the shares stand higher than 100 day and 200 day moving averages but lower than 5 day, 20 day and 50 day moving averages.

The large-cap stock has gained 89 per cent in the last one year and has risen 59 per cent since the beginning of this year.
 
CP Gurnani, Managing Director & Chief Executive Officer, Tech Mahindra, said, "As we record our highest sequential growth in a decade, we remain committed to delivering long-term sustainable and profitable growth for the company. We have witnessed strong traction across all key markets as we invest in our digital capabilities through strategic partnerships. We continue to accelerate our clients' digital journey by creating Human Centric Experiences, helping them gear up for tomorrow, today."
 
According to a report by Motilal Oswal, the management commentary on sustained deal win momentum and revenue growth remains strong. With healthy deal bookings, robust pipeline, and strong net additions, we expect TECHM to deliver organic CC revenue growth of 13.8% YoY in FY22.
 
"We continue to stay on the sidelines on TECHM, as we see its strong business performance balanced with elevated operational risks in a supply-constrained environment. While commentary on 5G remains upbeat, we await further clarity on the sustained impact of 5G spend on growth, given the repurposing of budgets in 5G, which should taper down the momentum unlike previous cycles," the brokerage house noted.
 
"Management is confident in maintaining EBIT margins above 15 per cent despite headwinds from supply-side pressures and higher attrition (21 per cent, +400bps QoQ) due to margin levers - i) offshoring, ii) G&A costs centralsation for portfolio companies, iii) pyramid optimisation (doubled intake of freshers in FY22) and v) revenue growth leverage," stated Prabhudas Lilladher in a research report.
 
"On 5G theme, we believe TechM to be the biggest beneficiary as its strong play in network infrastructure services differentiates it from other Indian IT. TechM's investments in 5G and strong long-term relationships with service providers are also yielding results," it added.
 
CLSA has maintained an 'Outperform' call on the stock and has raised the target price to Rs 1,720 from Rs 1,600 per share. It noted that the risk-reward is favourable despite a 35 per cent rally in the last 3 months.
 
Tech Mahindra also announced the acquisition of Lodestone, a leading digital engineering quality assurance provider for new-age digital companies.
 
"The acquisition will bolster Tech Mahindra's digital engineering capabilities to effectively utilize data strategy and address machine learning challenges," the company said.