Tech Mahindra Ltd. share price target

We believe, EBIT margin improvement is a low hanging fruit for TechM’s new CEO Mr. Mohit Joshi; however, top line revival may take some time. That said, Mr Joshi’s opening gambit (appointment of COO Mr. Atul Soneja and an internal reshuffle) bolsters our conviction for a successful turnaround.

TechM reported a weak set of numbers on all fronts. Revenue at USD 1,061mn was down 4% QoQ (I-Sec: -2.3%, consensus: -1.2%) due to sharp decline of 9.4% QoQ USD in communications (38% of revenue) and 3.2% QoQ USD decline in BFS (16.1% of revenue).

CME a drag (-9% QoQ) in Q1 mainly due to lower network service and discretionary spends together with deal deferrals

TechM’s revenue declined 4% QoQ (4.2% in cc terms) to US$ 1.6bn. EBIT margin declined by 440bps QoQ to 6.8% even after adjusting for one-offs. The sharp decline in CME (down 9.4% QoQ), owing to cut in discretionary spending / closure of network services projects. Deal wins remain weak - stood at US$ 359mn (down c.25% YoY on TTM basis).

We expect delays in decision-making on IT budgets. Keeping this in view, we recommend a SELL on the stocks.