Brockerage firms prune target price of Tech Mahindra

Mahindra Group controlled information technology company Tech Mahindra came up with a profit warning for the first quarter of the current fiscal. The warning does not seem to have gone down well with brokerages with many of them pruning their target price on the stock.

“We update our model for likely weak June 2015 revenues along with a 30-110 bps downward revision to EBIT margins over FY2016-2017 estimate, leading to eight per cent to 12 per cent downward revision in our EPS estimates. We continue to value Tech Mahindra at 12x for FY2017 estimated EPS and retain our underweight rating with a revised price target of Rs 415 (previously Rs 480),” Barclays said in a note.

“Led by both revenue and EBIDTA margin downgrade, we reduce our EPS estimates by 14 per cent and eight per cent for FY12016 and FY2017 estimates respectively. We revise our target price lower to Rs 560 per share (15x FY2017 estimate EPS vs 16x earlier). Our downgrade in target price is accompanied by both earnings and price-to-earnings (P/E) downgrade (15x FY2017 vs 16x earlier),” Centrum said in a note.

“We cut FY2016 to FY 2017 estimated EPS by six per cent to seven per cent each to Rs 30.6 to 37.3 driven by moderation in revenue estimates (we now forecast flat organic revenue growth V/s five per cent earlier for FY2016). A 25 per cent correction in calendar year 2015 to date will limit any meaningful price damage but the operating performance recovery will be modest and gradual in the subsequent quarters in our view and is already factored in our estimates," Emkay  said. The brokerage firm retained its REDUCE rating on the stock but cut its target price to Rs 485 from Rs 550 earlier.