Tech Mahindra Ltd. share price target

TECHM's Q4FY20 result was a miss to our forecast operationally. Revenue decline of 3.3% QoQ in CC (-4.3% in US$) was a miss to our forecast. Further, EBIT margin decline was much steeper at 220bps QoQ to 10% vs. our forecast of -55bps. Adj. EPS was inline aided by higher other income and lower ETR. In Q4FY20, TECHM has secured large deals with TCV of US$513 mn (US$174 mn in...

In the near term (at least for the next two quarters), the company is expected to face multiple headwinds in terms of pricing pressure, ramp down in projects, lower growth in Comviva and impact on BPS business. Further, on the enterprise side, TechM is expected to see pressure on retail and manufacturing business. In addition, the enterprise side is exposed to more of discretionary spend (related to digital), which will also put pressure on revenue growth. However, we believe the company in the longer term could see improved spending on network operations, 5G, Cloud, AI and customer...

Tech Mahindra (TECHM) posted a 4.3% QoQ dollar revenue decline and 200bps EBITDA margin contraction to round off a disappointing Q4FY20 performance.

Management attributed ~150 bp of this decline to the COVID-19 crisis, with equal impact witnessed in terms of disruption on the supply side (in BPS) and demand Weakness in Comviva and reduced volumes due to some large deals transitioning to the steady state are other factors attributed to the poor Barring BFSI among the verticals and APAC among the geographies, other segments reported sharp revenue decline. Given the higher client concentration, especially within the Communications segment, we expect more intense pricing pressure in the Beyond the near term (three to six months), we expect a large number of enterprise clients to ramp-up their digital spends as social distancing norms globally accelerate the shift into the digital space. Management witnessed in terms of disruption on the supply side (in BPS) and demand side (in segments reported sharp revenue decline.

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.

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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...