Tech Mahindra Ltd. share price target

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....

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 &...