Tech Mahindra Ltd. share price target

Clients are adapting to the current situation and waiving off standard terms of contracts to allow employees to work from home so that business continuity is Almost all onsite resources are equipped with laptops to be able to work from home. Among the offshore resources, 40-50% are equipped with laptops to ensure business continuity, just in case if employees were to work from home. In BPO segment, company is spreading employees across floors and shifts to Offices in China remains closed so far. In Italy, people are working from home and client projects have been running on track. Other than these two geographies, there is no broad-based impact across any other customers as of now. Despite the sharp interest rate cuts across economies and volatility in capital markets, BFSI should deliver a good performance as the customer base of TechM well is diversified across geographies and a large deal has been ramping up in this vertical.

The spread of Covid-19 has led to lockdowns in many countries globally and could have adverse economic implications. In addition, the recent fall in crude prices could also have an adverse impact of fiscal health of oil producing countries. As a result, IT companies, which have considerable exposure to verticals such as oil, energy & utilities; banking & capital markets; manufacturing and travel & transport could see an adverse impact from the ongoing crisis. Companies like Wipro, Infosys in large cap and MindTree, NIIT Tech, Sonata software, Cyient, Accelya Solutions among...

Higher revenue growth momentum with diversified business structure makes Tech M more robust.

...

Top Line Outperforms but Margins Suffer: TechM reported yet another strong top line performance

Tech Mahindra Ltd offers Information Technology (IT) services and solution to telecommunications sector across the world. The Company is a leading Telecom focused provider of IT Services & Solutions to Global Telecommunication Industry, encompassing Telecom Service Providers (TSPs), Telecom Equipment Manufacturers (TEMs) and Independent Software Vendors (ISVs). The Company serves a broad spectrum of customers in the telecom ecosystem. The company also engaged in the...

TECHM's reported a strong revenue growth in Q3FY20, while EBIT margin was a miss. Revenue grew by 4.3% QoQ in CC (5.1% in US$) vs. our forecast of 2.3%. EBIT margin saw a decline of 60bps QoQ to 12.2% vs our forecast of 12.7%. Further, EPS of Rs13.2, +1.9%/-3.2%, QoQ/YoY was aided by higher other income and was a beat. In Q3, TECHM has continued its deal win momentum with net new wins of ~US$1.23bn which includes ~US$1.08 bn from Enterprise segment and ~US$145mn from...

Revival in Enterprise coupled with Telecom traction (large deal win and healthy pipeline) is supporting growth. BFSI growth will continue led by strong deal wins, Healthcare and TME will recover gradually. Manufacturing will stabilise led by growth in process industry and Auto sector pain is behind. The synergies between Telecom and Enterprise are now visible and can lead to large multi year transformational deal wins. We expect USD revenue CAGR of 7.9% over FY19-22E led by Telecom/Enterprise CAGR of 8.3/7.7%. TechM trades at a P/E of 14.6x FY21E (in line with Tier-1 median P/E). The risks to our thesis include deterioration in US/Europe macros, Brexit, trade wars and delay in 5G spend. We maintain BUY on Tech Mahindra based on higher than expected revenue and profits in 3QFY20. Growth visibility has revived for Telecom and Enterprise segment based on strong TCV wins for the second consecutive quarter. We increase earnings est. for FY21/22E by 3.5/4.7% based on better visibility and margin recovery. Our TP stands at Rs 910 based on 15x (~10% premium to 5Y avg.) Dec-21E EPS.

Deal wins, positive outlook set stage for FY21E-22E It was a strong quarter on the revenue front with revenues witnessing 5.1% sequential growth (above our 2.5% growth estimate). Growth was driven by telecom (communication) segment, which grew 8.9% QoQ led by ramp up of AT&T; deal in the quarter. In addition, healthy growth in banking & insurance (6.7% QoQ growth) and retail (8.1% QoQ) also drove the growth above expectations. Further, the deal winning momentum continued as TechM witnessed a strong deal intake of $1.23 billion with ~$1.08 billion in...

TCV was strong at US$1.23 bn (M9FY20: USD 3.2 bn, 151% YoY) led by US$ 900mn mega deal with Jackson National Life, this deal will be executed over a period of six years with revenue flow starting in the Q4FY20E....