Tech Mahindra surges over 8%, hits new high as Q1 profit beats estimates

Shares of Tech Mahindra surged 8.5 per cent to Rs 1,224, also its new high, on the BSE in the intra-day trade on Friday after the IT major reported a 39.17 per cent year-on-year (YoY) jump in its consolidated net profit at Rs 1,353 crore for the April-June period of financial year 2021-22 (Q1FY22) as against Rs 972-crore profit posted in the corresponding quarter last year. On quarter-on-quarter (QoQ) basis, the profit rose by 25.13 per cent.

The consolidated revenue from operations in Q1FY22 grew 11.98 per cent YoY at Rs 10,198 crore. The company had posted revenue of Rs 9,106 crore in the same period a year ago. Sequentially, the figure rose by 4.8 per cent from Rs 9,730 crore posted in the preceding quarter, led mainly by 4.5 per cent QoQ growth in Enterprise revenues and 2.9 per cent QoQ growth in communications.

The dollar revenue for the quarter was at $1,384 million, up 14.6 per cent YoY and 4.1 per cent QoQ. In constant currency terms, the revenue rose by 3.9 per cent QoQ. Order book, meanwhile, increased from $290 million in Q1FY21 to $815 million in Q1FY22.

The company beat profit expectations by a wide margin as most brokerages had projected the figure to rise between 16-23 per cent YoY. On the revenue front too, the figure was marginally higher than analysts' estimates.

"Tech Mahindra reported a healthy revenue growth, in-line with large cap peers. It has also shown healthy traction in order book. This, coupled with traction in digital technologies, improving 5G spend (on communication & enterprise side), large deals and acceleration in Europe bode well for revenue growth. Additionally, healthy margins also prompt us to be positive on the stock," ICICI Securities said in a note.

Those at Motilal Oswal Financial Services observe that Ebit (earnings before interest tax) margin dipped by 130 basis points (bp) QoQ in Q1FY22 (led by wage hike, visa cost and seasonality in Communications), but was 90bp above their estimate.

"With healthy deal bookings and highest-ever pipeline, we expect Tech Mahindra to deliver revenue growth of 13 per cent in FY22, although it will still be the weakest among our large-cap coverage universe. We continue to stay on the sidelines on Tech Mahindra as we see its stronger business performance as balanced by elevated operational metrics in a supply constrained environment," the brokerage firm said.