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Stock News: Tech Mahindra's 6% plunge in shares underscores the challenges faced by the company

Stock News: Shares of Tech Mahindra Ltd witnessed a significant downturn in Thursday's trading session, marking a 6.09% plunge following the company's reported slump in third-quarter (Q3 FY24) net profit. The stock, which had recently reached a one-year high, faced a day low of Rs 1,322, down from the previous close of Rs 1,407.75. This decline comes amid various challenges faced by the fifth-largest Indian IT services firm.

Key Financial Metrics

Tech Mahindra reported a net profit of Rs 510 crore for the three months ending December 31, 2023, reflecting a substantial decrease of 60.6% compared to Rs 1,297 crore in the same period the previous year. The dip in profitability is particularly notable as this is the first quarter under the leadership of CEO Mohit Joshi, who recently took over from former CEO CP Gurnani.

Revenue and Deal Wins

The company reported a revenue of Rs 13,101 crore during the reviewed quarter. Operating margins experienced a significant decline, slipping by 660 basis points (bps) to 5.4% from the same period last year. Additionally, new deal wins saw a sharp contraction, reducing to $381 million from $795 million.

Sector-wise Impact

A major contributor to the overall downturn was the weakness observed in the communications, media, and entertainment vertical, which represents Tech Mahindra's largest revenue segment. This sector experienced a notable drop of 13.4%, impacting the company's overall growth.

CEO's Perspective

Tech Mahindra CEO Mohit Joshi characterized the quarterly outcome as "mixed." While there was growth in the manufacturing and healthcare segments, spending remained subdued in key areas such as communications, BFSI (Banking, Financial Services, and Insurance), and hi-tech.

Industry Landscape

The challenges faced by Tech Mahindra are reflective of broader trends within India's $245-billion IT industry. The sector has been grappling with uncertainties in demand as clients trim their spending amidst concerns about inflation and recession.

On a technical note, the stock exhibited a trading pattern lower than the 5-day and 10-day simple moving averages (SMAs) but higher than the 20-day, 30-day, 50-day, 100-day, 150-day, and 200-day SMAs. The 14-day relative strength index (RSI) for the counter stood at 54.54, indicating a moderate level of market momentum. A level below 30 is considered oversold, while a value above 70 is seen as overbought.

Tech Mahindra's 6% plunge in shares underscores the challenges faced by the company in a complex and evolving market landscape. The impact of sector-specific weaknesses and cautious client spending has contributed to a mixed financial performance for the quarter. As the industry grapples with macroeconomic uncertainties, stakeholders will be closely watching how Tech Mahindra adapts its strategies under new leadership to navigate these challenges.