Tech Mahindra shares price drop over 5% following Q1 results: Should you buy, sell, or hold the IT stock?

Tech Mahindra shares price dropped over 5% after the company announced its Q1 results, which were largely in line with market expectations. The company reported a net profit of ₹851.5 crore for the first quarter of FY25, reflecting a 28.8% increase from ₹661 crore in the previous quarter.

Tech Mahindra shares price plunged over 5% in early trade on Friday after the company announced its Q1 results, which were largely in line with market expectations. The stock dropped as much as 5.52% to ₹1,445.50 per share on the BSE.

As India’s fifth-largest software services company, Tech Mahindra reported a net profit of ₹851.5 crore for the first quarter of FY25, marking a 28.8% increase from ₹661 crore in the previous quarter.

The company’s revenue for Q1FY25 rose by 1% to ₹13,006 crore from ₹12,871.3 crore in the previous quarter. In USD terms, revenue increased by 0.7% to $1,559 million from $1,548 million.

Tech Mahindra‘s operating performance was broadly in line with expectations. Revenue increased by 0.7% quarter-on-quarter to US$1.56 billion, aligning closely with our estimates. Growth was fairly widespread, with five out of seven verticals showing QoQ growth, except for a decline in Communications due to Comviva’s seasonality,” said Dipeshkumar Mehta, Senior Research Analyst at Emkay Global Financial Services Ltd.

In the April-June quarter, Tech Mahindra’s EBIT rose by 16.5% to ₹1,102.3 crore from ₹946.4 crore, with the EBIT margin increasing by 110 basis points to 8.5% from 7.4% quarter-on-quarter.

“The EBIT margin of 8.5% was in line with our expectations, with the headwinds from Comviva’s seasonality and higher visa costs being offset by benefits from Project Fortius. Management emphasized that the ‘speed at scale’ strategy is being well received by clients and reiterated that FY25 is expected to be better than FY24. The demand environment has remained fairly similar to the previous quarter, with some improvement compared to the previous year,” noted Dipeshkumar Mehta, Senior Research Analyst at Emkay Global Financial Services Ltd.

With Tech Mahindra’s delivery execution for its ‘Vision 2027’ strategy starting strong, the brokerage firm raised its target multiple to 22x from 19x. They adjusted their FY25-27E EPS estimates by -2% to +2%, considering the Q1 performance and higher ETR assumptions.

Emkay Global maintained an ‘Add’ rating on Tech Mahindra shares and raised the target price to ₹1,650 per share, up from the previous ₹1,425.

Nuvama Institutional Equities noted that while Tech Mahindra’s Q1 results are a positive step, the company faces challenges ahead. “Growth will be difficult, with telecom still accounting for 33% of revenue, and margins may encounter headwinds due to building bench strength and investing in growth. We expect near-term difficulties before any potential long-term gains,” Nuvama Equities stated.

Motilal Oswal remains optimistic about Tech Mahindra’s restructuring under new leadership, viewing this quarter as another positive step forward.

“However, we anticipate that the effects of these changes will become apparent gradually. Additionally, Tech Mahindra’s significant presence in the communications segment, which is currently under considerable pressure, makes the new management’s task even more challenging,” Motilal Oswal remarked.

FY25/FY26 EPS estimates remain broadly unchanged, with FY25E/FY26E EBIT margins projected at 9.2% and 12.4%, respectively, resulting in a 25% CAGR in INR PAT over FY24-26E. The brokerage firm remains on the sidelines, believing that the current valuation adequately reflects the uncertainties surrounding growth and margin.

Motilal Oswal maintains a ‘Neutral’ rating on Tech Mahindra and upgrades its target multiple to 23x FY26E EPS, with a new target price of ₹1,470, implying a 5% downside.

The brokerage firm also maintained a ‘Reduce’ rating with a target price of ₹1,200 per share, up from ₹1,000 earlier.

As of 9:35 am, Tech Mahindra shares were trading 1.82% lower at ₹1,502.30 apiece on the BSE.