Tech Mahindra Ltd. share price target

Tech Mahindra has been one of the leaders in providing end to end solution to the IT needs of the telecom vertical.

Analyst meet takeaways

We attended Tech Mahindra's (TECHM) recent analyst meet and present the key takeaways.

Tech Mahindra (TechM) recently hosted an analyst meet wherein the company re-articulated its objective of Run business better, Bring a change and Be future ready'. To meet this objective, TechM is betting on customer experience, platforms, infrastructure & driving it by up skilling people in new technologies, adding capabilities through selective strategic acquisitions and partnerships & alliances ecosystem. Taking this into account, the company said: 1) growth would improve in communication & enterprise segments led by healthy deal pipeline, large deals and 2) margins are...

Tech Mahindra (TechM), a part of Mahindra Group, offers technology services and solutions across Telecom IT & Network Services, Consulting, Application & Infrastructure Outsourcing, Engineering Services, BPO &...

Tech Mahindra Ltd. (Tech M) reported strong results in terms of top line and in terms of operating margins in Q2FY20. Tech M posted strong revenue growth of 4.4% on QoQ basis and 6.2% on YoY basis for the period of Q2FY20 at Rs.9, 070 crs.

Strong Q2 Performance: TechM reported a revenue growth of 4.1 percent in CC terms sequentially

Revival in Enterprise coupled with Telecom traction (large deal win and healthy pipeline) is supporting growth. Healthcare and Hi-Tech growth is likely to sustain, BFSI will recover gradually. Manufacturing will stabilise, pain related to Auto sector is behind. Highest TCV wins both Enterprise and Telecom is encouraging. We expect USD revenue CAGR of 8.6% over FY20-22E led by Telecom/Enterprise CAGR of 8.0/8.9%. TechM has recovered sharply in the last 3M (+19%) and trades at a P/E of 14.6x FY21E. We upgrade to BUY based on improving business traction coupled with margin expansion. The risks to our thesis include deterioration in US/Europe macros, global trade war, Brexit uncertainties and delay in 5G spend. We upgrade Tech Mahindra to BUY from NEU based on strong show in 2QFY20. Growth engine has revived with large deal win in Telecom and strong Enterprise TCV. We increase earnings est. for FY21/22E by 3.9/4.3% based on better visibility and margin recovery. We increase our P/E multiple to 15x vs. 12x earlier. Our TP now stands at Rs 850 based on 15x Sep-21E earnings.

Revenue outperformance: For 2QFY20, TECHM's revenue grew 7.3% YoY CC (v/s estimate of +4.8% YoY), EBIT declined 12.4% YoY (estimate of -18.4% YoY) and PAT increased 5.6% YoY (estimate of -10.8% YoY). Higher deal wins in the Enterprise segment led to the revenue outperformance. EBIT margin expanded 130bp QoQ to 12.8%, a 60bp beat to our estimate of 12.2%. However, during the quarter, SGA had a one-time gain of ~INR720, adjusting for which the EBIT margin was largely in line with our estimate. PAT was INR11.2b, up 17.2% QoQ, a 18.5% beat to our estimate, mainly due to the...