M&M management expects a turnaround in the next few years. The comment boosts investor sentiment given that Tech Mahindra's recent earnings performance has largely underperformed that of tier-1 peers.
Shares of large-cap IT services provider Tech Mahindra Ltd gained nearly 2% on the National Stock Exchange in Monday's trading session as hopes of improvement in the company's financial performance fueled optimism among its investors.
At its recent earnings call for Q3 FY2023, the management of the promoter company- Mahindra & Mahindra Group admitted that there were areas for improvement in both growth and margins at Tech Mahindra. Further details on how this will be achieved are likely to emerge only after the new leadership is appointed. M&M management expects a turnaround in the next few years. Nonetheless, the comments have dampened investor sentiment, given that the IT giant's recent earnings performance has largely underperformed that of tier-1 peers.
“TechM has outperformed its larger IT peers on both growth and margins. Analysts at Kotak Institutional Equities said, despite net new-deal TCV being strong in the US$0.7-1.0 billion range over the past eight quarters, organic revenue growth has lagged larger peers.
Ebit margin narrowed to 11.5% vis-à-vis 9MFY23 due to supply side pressures in the sector, normalization of discretionary expenses and operational challenges, the report said. "These twin challenges are getting the promoter company M&M under scrutiny with a clear focus on growth and narrowing margin gap with peers," said the domestic brokerage house.
In addition, analysts at Kotak observe that many senior leaders in large organizations have opted for the CEO role in smaller firms. Since TechM has size, scale and relevance, the challenge will not be in attracting high-profile candidates (if the company opts for an external CEO), but in choosing the right one, according to the Kotak report.
Meanwhile, in the last one year, Tech Mahindra shares have declined by 18%, in contrast to the 4-9% decline witnessed by Tata Consultancy Services Ltd, Infosys Ltd and HCL Technologies Ltd. As a result, Tech Mahindra trades at cheaper valuations relative to these companies.
No comments:
Post a Comment