Tech Mahindra Ltd. share price target

Healthy margin expansion of ~400bps over two years has led to re-rating of the stock. But now, with limited margin levers available, focus will shift back to growth, which is under pressure (+4.2% in FY19, second lowest in Tier-1 IT). Slowing growth in Enterprise, challenges in Manufacturing and BFSI is adding to the worries. Also, sustainability of Telecom growth is questionable considering macro concerns. Overall, we expect USD revenue CAGR of 7.2% over FY19-21E led by Telecom/Enterprise CAGR of 8/7%. Growth and margin challenges will lead to 5.4% earnings CAGR over FY19-21E. TechM trades at a P/E of 15.6x FY20E, which is expensive considering inferior growth metrics, thus we downgrade it to SELL. Risk to our thesis includes better than expected macros in US/Europe, uptick in 5G spending and INR depreciation. We downgrade Tech Mahindra to SELL (from BUY), post weak 4QFY19. Slowdown in Enterprise segment and peaking margins are a cause of concern. Growth metrics remain weak (+5.4% earnings CAGR) with inferior business mix vs. peers (Telecom dependency). We cut earnings est. by ~4% and multiple to 12x (vs 15x earlier) to arrive at a TP of Rs 652 (~15% downside from CMP).

All the three OMCs IOCL, BPCL and HPCL reported Q4FY19 earnings well above estimates due to a surge in marketing segment earnings (80-130% YoY) to recoup the massive inventory losses incurred in Q3. However, these margins have normalised from Q1FY20. GRMs across OMCs were muted, with BPCL trailing the pack due to steep underperformance at its Kochi refinery. We maintain BUY on IOCL but retain SELL on BPCL/HPCL due to...

TECHM's Q4FY19 result was a slight miss to our forecast. Revenue remained unchanged QoQ in CC vs. our forecast of +1% QoQ. This and INR appreciation resulted in EBIT margin declining by 70bps QoQ to 15.4% (-35bps adjusted for one-time charge). EPS of Rs12.8, -6%/-7.8% QoQ/YoY missed our forecast by ~7%. In Q4, TECHM has secured large deals with TCV of US$408 mn taking the TCV for FY19 to ~US$1.7 bn. TECHM has maintained its high single-digit revenue growth outlook for FY20 and now expects Communication vertical (42.7% of revenue) to lead the growth. We factor Q4FY19 miss and trim our FY20E revenue (in US$)/EPS by 1.8%/2.9% and also...

Communication grew well better than expectations in the quarter. We expect momentum in communication to continue in FY20E. Hence, we expect growth to be more balanced between communications and enterprise segment vs. prior expectations of mid-single digit growth in communication and 8-10% growth in the latter. Lower growth in enterprise is due to weak outlook in healthcare, BFSI and cut down of less profitable projects. On the deal front, pipeline continues to be healthy with TCV of US$408 million in Q4FY19 and 33% YoY growth in FY19. Although the...

Telecom is back on the growth trajectory due to multiple broad-based services deals.Action on the 5G rollout front- not as significant currently - is expected to accelerate CY20 onwards; lest there is positive disruption driven by some Service providers.

TECHM reported muted Q4FY19 results, which were largely in line with our estimates. The company's communication business grew in Q4FY19, but fell 1% YoY in USD terms in FY19. This was below the management's guidance of a low single digit growth. The management is confident of total revenue growth in FY20, but expects the communication business to...

Lopsided growth yet again as enterprise business disappoints Tech Mahindra's (TECHM) Mar'19 quarter was below estimates due to a disappointing performance from the enterprise business where a few large projects drew to a close and new contract signing was delayed. Enterprise revenue dipped 2.2% QoQ while communication revenue increased 4.4%. Management retained its FY20 growth outlook and is targeting flat to marginally better operating margins. We trim FY20/FY21 earnings estimates...

A contrasting year for revenues and margins: For FY19, TECHM's USD revenue grew 4.2% YoY, EBITDA increased 34% YoY and PAT was up 13% YoY. Including the buyback of INR19.6b, the total payout for the year stood at 74.5%. For 4QFY19, USD revenue grew 1.9% YoY (our estimate: +3.5% YoY), EBITDA increased 16% YoY (our estimate: 23%) to INR16.4b, while PAT declined 7% YoY (our estimate: -1% YoY) to INR11.3b. 4QFY19 dragged by Enterprise: Communications (42.7% of revenue) surprised positively with sequential growth of 4.4% versus our estimate of...

Tech M had an impressive FY19 with EBITDA margins expanding by ~290bps Change in Estimates | Target | Reco YoY, strong TCV growth of 43% YoY to US$400mn in Q4FY19. Digital services grew 41% YoY and stands at 31% of the total revenues in FY19. Overall, Tech...

TechM delivered healthy performance in Q3FY19 with revenue growth of 3.5% QoQ in USD terms (+4.3% QoQ in CC terms), ahead of our estimate. EBITDA margin expansion continued to beat estimate with an improvement of 50...