Tech Mahindra rises 6%, hits new high as Q3 profit beats Street estimates

The stock rallied 6% to Rs 794, surpassing its previous high of Rs 780 touched on October 3, 2018, on BSE in the intra-day trade.

Shares of Tech Mahindra hit a new high of Rs 794 apiece, up 6 per cent on BSE in the early morning trade after the company reported better-than-expected sequential growth of 13 per cent in consolidated net profit at Rs 1,203 crore for the quarter ended December 2018 (Q3FY19). The IT major reported 27.5 percent year-on-year (YoY) rise in net profit.

The stock surpassed its previous high of Rs 780 touched on October 3, 2018, on BSE in the intra-day trade. The revenue for the quarter rose 3.6 per cent against the September quarter to Rs 8,944 crore.

Analysts, on an average, had expected a profit of Rs 1,125 crore on revenue of Rs 8,957 crore for the quarter.

In constant currency terms, revenue was up 4.3 per cent sequentially. Revenue in US dollar terms was at $1,260.8 million, up 4.3 per cent YoY and up 3.5 per cent quarter-on-quarter (QoQ).

The reported quarter has been impressive on all fronts, delivering steady growth in enterprise and communications business along with margin expansion of 300 bps on a YoY and 50 bps on QoQ basis.

EBITDA (Earnings before interest, taxation, depreciation and ammortisation) margin improved to 19.26 per cent in Q3FY19 from 18.76 per cent in Q2FY19. It was at 16.26 per cent in Q3FY18.

Tech Mahindra has guided for healthy growth in telecom going ahead, aided by strong deal wins and healthy deal pipeline.

Analysts at Antique Stock Broking believe that telecom growth is here to stay in the medium term, driven by 5G related spending, as evidenced by commentary from Tech Mahindra and the tier-1 IT companies.

“Although at a slower pace company aims for further margin improvement led by changing business mix increasing adoption of automation and improvement in portfolio companies margins. We expect a steady margin trajectory going forward,” the brokerage firm said in result update with ‘buy’ rating on the stock and target price of Rs 870 per share.

“With continued strong booking in communications and the possibility of a lead in setting credentials for 5G via anchor customers for Altiostar, we think medium-term growth prospects have improved further,” analysts at Elara Capital said in quarterly update. The brokerage revised stock rating to Accumulate from Buy, with a target price of Rs 890, given a 9.6 per cent run-up from October 30, 2018.

At 09:39 am, Tech Mahindra was trading 5.5 per cent higher at Rs 791 on BSE, as compared to 0.60 per cent rise in the S&P BSE Sensex. The counter has seen huge trading volumes with a combined 3.8 million equity shares changed hands on the NSE and BSE in first 30 minutes of trading today.