Tech Mahindra Ltd. share price target

TECHM's Q2FY20 result was a big beat to our forecast especially on revenue growth and EPS front. Q2 revenue grew by 4.1% QoQ in CC vs. our forecast of 1.4%. EBIT margin improved by 130bps QoQ to 12.8%, in-line with our forecast. Further, lower tax rate aided EPS of Rs12.9, +17.1%/+7.3% QoQ/YoY which was a big beat to our forecast. In Q2, TECHM has secured deals with TCV of US$1.49bn which includes US$1.08 bn in communications and rest in the Enterprise segment. Further, TECHM confirmed that the deal pipeline remains strong. We factor the beat in Q2 and increase FY20/21E EPS by 6.5%/4.7%. We largely maintain our...

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...

In this quarter, the company won record new deal wins worth $1.49 billion, up 3.1x QoQ. Of this, the telecom (communication) segment comprised ~$1 billion while enterprise constituted the rest. In addition, the deal pipeline remains strong as per management. A healthy deal pipeline enhances the revenue visibility and execution of these deals would accelerate the growth rate. Further, bottoming out of dragging forces in enterprise segment (auto in manufacturing) would support growth. In addition, momentum in 5G related investments and revenue flow from AT&T; deal would led to growth...

TechM revenues grew 4.1%/7.3% CC qoq/yoy and were better than our expectations of 2.9% qoq CC growth. Growth was driven by the Enterprise business (up 5.6% qoq in CC terms; ~59% of sales), while Telecom revenues grew 2.0% qoq in CC. TechM retained its FY20 revenue growth outlook of in-line with industry growth' in the Telecom business (~41% of sales) and mid-single digit growth in the Enterprise segment (~59% of sales), suggesting nearly 6.0-7.0% CC yoy growth for the entire business. EBIT margins are expected to decline 150-250bps yoy in FY20....

Recently, Tech Mahindra has secured a multiyear contract from AT&T; communications. The expansion of the strategic collaboration focus on accelerating AT&T;'s IT network application, shared systems modernization and movement to the cloud. As per media sources, it is the largest deal with a consideration of ~$1 billion. Previous to this deal, company has bagged an outsourcing contract of $100 million from Vodafone in New Zealand (media sources). Company's management commentary also indicates a revival in large deals, as companies move towards bigger transformation...

6 September 2019 We are modeling in incremental annual revenue of USD150m from FY21, while total revenue recognition will be ~USD57m in FY20. We have increased our CC revenue growth estimate for FY20/21 from 5.5%/8.2% to 5.8%/9.9% on account of the large deal ramp-up from the mid of 3QFY20. The deal is expected to weigh marginally on profitability in the initial transition phase, which may include some personnel transfer from AT&T; to TECHM. We thus lower our EBIT margin estimate for FY20/21 by 20bp to 13.1/13.8%. Overall, we expect the deal to have a limited impact on EPS in FY20 and be accretive FY21 onward. Consequently, we maintain our EPS estimate for FY20 but increase it by 1% for FY21. After a sluggish start to the year, the earnings growth outlook has turned muted for FY20. In our view, revenue growth remains crucial for a recovery in margins. The announcement of AT&T; deal comes as a booster to that effect.

Waiting in the Wings: Tech Mahindra (TechM) went through rough times due to restructuring at one of its subsidiaries LCC and prolonged weakness in its telecom business (which contributes 41% of revenues) due to delay in spending decision as a result of consolidation in the industry.

Tech Mahindra (TECHM) subsidiary Pininfarina (PINF) was a harbinger of growth for the company over the past two years, bringing in 16% of incremental FY19 revenue.

Tech Mahindra Ltd (TechM). reported subdued growth in all the terms Q1 FY20, TechM's consolidated revenue declined by 1.6% QoQ and grew marginally by 2% on YoY basis in constant currency terms. EBITDA Margins have declined by 300 bps on QoQ basis and stood at 15.2%.