HDFC Securities has given Buy recommendation for Tech Mahindra with a target price of Rs. 1110 in its research report issued on Feb 01, 2021

HDFC Securities’ research report on Tech Mahindra

We maintain our BUY rating on Tech Mahindra based on better-than-expected growth and improving margin profile. USD revenue was up 2.8% QoQ CC vs. TCS/INFY/WIPRO/HCLT performance of +4.1/+5.3/+3.4/+3.5% QoQ CC respectively. Telecom growth bounced back to +4.4% QoQ (better than expected), led by rebound in Network Services and traction in BPM (+11.5% QoQ). Enterprise growth of 2.8% QoQ was supported by Retail and rebound in Manufacturing. Net-new TCV improved to USD 455mn (+8.1% QoQ), the pipeline remains robust and deal closures will improve. Spend on 5G (Networks & 5G Enterprise) is gradually increasing, and TechM, being the leader, is well-placed to benefit from this trend. Growth will be driven by both Telecom (Network services) and Enterprise (BFSI and Technology and Retail). Operational performance continues to improve, margin expansion of +173/373bps QoQ/YoY was better than expected, led by Offshoring, lower subcon and higher utilisation.


We increase our EPS estimate by +4.2/2.9% for FY22/23E to factor in better growth and margin profile. Our target price stands at Rs 1,110, based on 17x Dec-22E EPS (5Y average 1Y fwd P/E of 14x). The stock currently trades at a P/E of 18.1/16.2x FY21/22E EPS.