Tech Mahindra Shares Drop 4% Post Q1 Results, Analysts Cautious on Future Growth

Keywords: Tech Mahindra, Q1 results, share market, Nifty 50, brokerage firms, Nuvama Institutional Equities

Summary

Tech Mahindra Ltd. experienced a 4% decline in its share price, becoming the top loser in the Nifty 50 index after reporting its Q1 results. Despite a decent performance in the first quarter, analysts have adopted a cautious stance regarding the company’s future growth prospects.

Key Points:

1. Stock Performance:
   • Tech Mahindra shares fell by 4% in trading on Friday, July 26, making it the top loser in the Nifty 50 index.
2. Analyst Perspective:
   • Nuvama Institutional Equities maintained a ‘Reduce’ recommendation on the stock. The firm raised its price target to ₹1,200 from ₹1,000, citing near-term challenges before any potential long-term gains.
   • The brokerage noted that the first quarter was decent, overcoming Q1 seasonality, but emphasized that achieving future targets would be challenging.
3. Growth Challenges:
   • Telecom continues to form a significant portion (33%) of Tech Mahindra’s revenue. This sector poses growth difficulties and margin pressures.
   • The brokerage highlighted potential headwinds, such as building bench strength and investing in growth, before experiencing tailwinds from improvements in the employee pyramid and subcontracting costs.

Top Gainers in the Market:

• Bharti Airtel: ₹1,504.00 (+3.78%)
• Divis Labs: ₹4,687.05 (+3.08%)
• Infosys: ₹1,875.65 (+2.78%)
• Cipla: ₹1,535.20 (+2.34%)
• LTIMindtree: ₹5,745.60 (+2.64%)

Analyst Commentary

Nuvama Institutional Equities highlighted the importance of overcoming telecom sector challenges and margin pressures for Tech Mahindra’s future growth. While the Q1 results were satisfactory, the firm anticipates difficulties ahead in achieving the company’s strategic targets.

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