We attended the virtual analyst meet of Tech Mahindra (TechM). The company highlighted that it is expecting acceleration in growth based on a large deal pipeline (73 large deal potential), healthy pipeline (up 20% YoY in six months), acceleration in digital technologies and 5G opportunities. TechM is also aiming to reduce revenue volatility by focusing on more annuity type deals. In FY22E, the company is targeting lower than double digit growth (probably mid high single digit) in Telecom (~40% of revenues) and double digit in enterprise segment (~60% of revenues). In terms of margins, TechM expects to reach 15% by FY22E led by higher offshoring, lower subcontracting cost, reducing focus on low margin geographies, services & customers and pyramid rationalisation.
Valuation & Outlook
The company is expected to see acceleration in revenue growth led by large deal pipeline, digital acceleration and improving IT spend in communication. Further, in the long term, we believe TechM will be a key beneficiary of 5G opportunities. This, coupled with an improving margin trajectory led by cost rationalisation and reasonable valuation prompt us to be positive on the stock. Hence, we maintain our BUY recommendation on the stock with a target price of Rs. 1040/share (15x FY23E EPS).
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_TechM_AnlstMtUpdate_Dec20.pdf
Shares of TECH MAHINDRA LTD. was last trading in BSE at Rs.910 as compared to the previous close of Rs. 876.15. The total number of shares traded during the day was 133575 in over 4456 trades.
The stock hit an intraday high of Rs. 914.2 and intraday low of 872.6. The net turnover during the day was Rs. 119399543. |
