M&M group stocks under pressure after RBL Bank investment, TechM's earnings miss

Stocks of the Mahindra & Mahindra (M&M) group have been under selling pressure and were the top Sensex losers on Thursday.

M&M slumped 6.5 per cent after the company announced equity stake buy in RBL Bank.

On Wednesday, it made an announcement of acquiring a 3.53 per cent stake in RBL Bank as an investment at a cost of Rs 417 crore.

“We may consider further investment subject to pricing, regulatory approvals and required procedures. However, in no circumstance will it exceed 9.9 per cent”, M&M said in a filing.

In a communication, RBL Bank said that the holding of M&M Limited as per the last beneficiary position as on July 21 as received from the depository (NSDL) is 3.53 per cent of the total paid up share capital of the bank.

“We being a listed company, for trading in the shares of the Bank there is no pre-approval required from the bank except for the fact that as per the Master Direction -- Reserve Bank of India (Acquisition and Holding of Shares or Voting Rights in Banking Companies) Directions, 2023, any shareholder who wishes to acquire 5 per cent or more of the shareholding of the bank is required to make an application to Reserve Bank of India to seek their prior approval for such acquisition. No such application has been received by us till date,” the bank said.

Tech Mahindra was down more than 3 per cent after the IT major’s poor show in Q1 results.

Motilal Oswal Financial Services said in a report that Tech Mahindra delivered a weak 1QFY24 performance, with revenue declining 4.2 per cent QoQ in CC to $1.6 billion, missing our estimate of a 2.5 per cent decline.

"Due to the sharp dip in revenue, Tech Mahindra also saw a steep fall in profitability, exacerbated by a 200bp one-time impact from bankruptcy of a client. We expect the company’s profitability to improve from 2Q onward, partially through sharp cost control and headcount cuts despite high utilisation," the report said.

"While we expect a potential for performance improvement after the leadership refresh in Jun’23, we believe this will take time given the macro headwinds and limited flexibility to invest in growth because of weak current profitability. We remain on the sidelines as we feel the current valuation fairly factors in the uncertainties around growth and margin. We cut our FY24/FY25 EPS estimates by 8-10 per cent on weak margin and muted outlook."

Emkay Global Financial Services said Tech Mahindra’s revenue slumped 4 per cent QoQ (4.2 per cent CC) to $1.6 billion, missing our estimates. EBITM declined by 440bps QoQ to 6.8 per cent, well below our estimate even after adjusting for one-offs.

Deal wins remain weak, and stand at $359 million (TTM deal-intake down 25 per cent YoY).

Tech Mahindra has failed to capitalise on its strength in the areas of communications, ER&D, BPO, XDS, etc, and deliver consistent performance in the past, the note said.