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“FCF to PAT conversion ratio stood at 59 percent compared to 67 percent during the previous quarter of the current financial year,” said Dash.

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Tech M generated a quarterly free cash flow (FCF) of $111 million which was down 10 percent from the previous quarter. “The other factors weighing on the stock performance are its low cash conversion and the likely increase of close to 150 bps in its effective tax rate from 24.5 percent currently to around 26 percent for FY23 which could further impact the bottom line”. “The company undertakes wage hikes in the second quarter (effective from July) of the financial year, which is likely to limit the margin improvement in the second quarter,” Dash said. The April-June period is typically a weak quarter for the company due to which experts don’t expect a significant improvement in the performance. “Higher attrition coupled with increasing salary costs is expected to pressure the company’s margins in the quarters ahead,” Damania said. The company’s attrition rate surged to 23.5 percent in Q4FY22 from 13 percent in Q4 FY21. He said the amortisation cost will continue to be high in the coming quarter due to the recent acquisitions made by Tech M. “The Q4 EBIT (earnings before interest and tax) margins contracted by 159 bps q-o-q to 13.2 percent, which was below our and street’s estimates as well, owing to rising expenses to backfill higher attrition, salary and retention related impact, lower utilization and 80 bps increase in depreciation due to higher M&A activities,” said Aashish Dash, Research Analyst at Sharekhan by BNP Paribas. The weak commentary by the management did not help investor confidence, they said. Why is the stock not performing well? Experts say there are several factors at play apart from the overall market and sector-specific sentiment.Įxperts were expecting a strong commentary and margin guidance from the company but it didn’t happen.

Tech Mahindra has lost 37 percent during the first five months of 2022 and has declined close to 11 percent in the past month.

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“We value the stock at 16x FY23E EPS, a 40% discount to our target P/E for TCS (Tata Consultancy Services),” the domestic brokerage firm added.īesides, the firm on Friday informed that the Board of Directors of the company, subject to requisite consents and approvals from jurisdictional NCLTs, approved the Scheme of Merger by Absorption of Tech Mahindra Business Services Limited (TMBSL) and Born Commerce – two wholly-owned subsidiaries – with the company and their respective shareholders. The brokerage firm also expects some normalization in the margin, which would lead to a lower P/E multiple. “However, the extent of the same is likely to be lower than its peers,” they said. Analysts expect Tech Mahindra to deliver double-digit growth in FY22. Those at Motilal Oswal Financial Services have a ‘neutral’ rating to the stock, with a target price of Rs 1,095, a gain of 14 per cent. Reliance Industries top Sensex gainer, RIL share price may rally 33%, Mukesh Ambani’s firm gets outperform tag