Tech M Shares Fall 9% in 5-Days as JPMorgan, Citi Downgrade, Price Target Lowered

Shares of Tech Mahindra fell 2.3% to Rs 998.

Shares of IT giant Tech Mahindra (Tech M) came under intense pressure this week after global brokerages JPMorgan and Citi downgraded their ratings.

The stock fell 2.6% to a daily low of Rs 994.55 on Friday after JPMorgan downgraded it to “underweight” from “neutral” and lowered its price target by 10% to Rs 900. With today’s drop, the stock has lost 8.5% since last Thursday.

Citing weaknesses and challenges highlighted by TCS, Infosys and HCLTech across its BFSI, telecom, high-tech, manufacturing and retail verticals, the brokerage said it expects “Tech M to be greatly impacted by this trend as it is a high-risk business (40% telecom and 10% tech) to these struggling verticals, which puts their growth and margins at risk in 4QFY23 and FY24.”

It also downgraded Mphasis to Underweight for the same reasons mentioned above.

The brokerage has cut Tech M’s FY24 and FY25 revenue forecasts by 3% and 5%, respectively. Margin estimates have been revised by 40bps and 60bps, leading to 7%/10% downward revisions to earnings per share (EPS) in FY24/25.

Earlier this week, Citi downgraded the stock to “sell” and lowered its target price to Rs 955 from Rs 1,110.

The brokerage cited further risks to growth in the communications vertical (telecom) and near-term challenges related to discretionary spending cuts and deferrals, supplier consolidation and pricing pressures as reasons for the downgrade.

“While management commentary from most companies has been cautious towards telcos for some time, headwinds appear to be higher than expected,” it said in the report.

It added that the positive impact of the leadership change might also take time to play out, and the risk-reward looks negative for the stock.

That said, for Mphasis, JP Morgan has lowered its FY24/FY25 revenue forecasts by 6/7% and 30-40 bps margin impact, respectively. This will drive earnings per share down 8% and 9% for the next two fiscal years. The target price on the stock has been cut by 14% to Rs 1,550.

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