Tech Mahindra shares tank nearly 6% despite beating Q1 revenue estimates

TCS share price: Shares of India's Tech Mahindra fell nearly 6 per cent on Friday, despite the company surpassing revenue expectations for the first quarter of the fiscal year. The decline was driven by a combination of investor reactions to broader market trends and concerns over the company's revenue performance relative to its historical figures.

On Thursday, Tech Mahindra reported its smallest revenue decline in four quarters, with consolidated revenue falling by 1.2 per cent to Rs 13,005 crore. This figure exceeded analysts' average estimate of Rs 12,945 crore, according to LSEG data. The performance was bolstered by stronger results in the company's manufacturing and healthcare segments, and a positive sign of returning client spending in its key US market.

Despite these results, the stock tanked 5.52 per cent to Rs 1,445.50 on the BSE and 5.60 per cent to Rs 1,444.25 on the NSE. The share price drop comes in the wake of ongoing concerns about the IT sector's broader economic environment and investor sentiment.

Tech Mahindra's net new deal bookings rose to $534 million, up from $500 million in the previous quarter and $359 million in the same period last year. This increase in deal bookings was a positive indicator, reflecting improved demand for IT services.

CEO Mohit Joshi expressed optimism about the company's prospects, stating, "With this positive start, we are more confident this will be a better year compared to the previous one." Joshi highlighted expectations of improved client spending from US-based clients and a slight overall improvement in demand.

The company’s operating margin rose by 170 basis points year-on-year to 8.5 per cent in the June quarter, driven by lower sales and administrative costs. This margin expansion contributed to a 23 per cent increase in profit.

Tech Mahindra, India’s fifth-largest IT services firm by revenue, has faced a challenging environment, with revenue declines widening from 2 per cent in the September 2023 quarter to 6.17 per cent in March 2024. The broader IT sector has been dealing with sluggish demand due to economic uncertainty and higher interest rates, leading clients to cut spending on non-essential projects.

Larger rivals such as Tata Consultancy Services, Infosys, and HCLTech have reported more upbeat results for the first quarter and suggested that the worst may be over for the sector, indicating a potential recovery in North America.