Motilal Oswal has given Neutral recommendation for Tech Mahindra with a target price of Rs. 1640 in its research report issued on Nov 11, 2021

Motilal Oswal’s research report on Tech Mahindra

We attended Tech Mahindra (TECHM)’s Investor Day; the overall management commentary was strong for both Communications and Enterprise, driven by 5G spending. The Communications vertical is expected to continue to witness growth, driven by 5G and digital transformation related spends. The management also outlined its aspirations to scale up the Enterprise verticals (HLS, Manufacturing, Hi-Tech, BFSI), which should provide comfort on the medium-term growth visibility. The deal win trajectory has accelerated, which the management expects would sustain. The company’s large-deal strategy and customer-led approach are showing results. Commentary around EBIT margins was strong, and while the management did not quantify medium-term margin aspirations, it was confident about margin expansion over the medium term. We see near-term headwinds and stretched operating metrics, and expect stable margins in 2HFY22. We expect margin expansion at 80bps over FY21–23, resulting in a 20% PAT CAGR over FY21–23E. TECHM’s high exposure to the Communications vertical remains a potential opportunity as a broader 5G rollout could lead to a new spending cycle in this space. The company is seeing traction in 5G investments. Moreover, the focus on scaling the Enterprise vertical and driving large deals adds to the medium-term growth visibility. Our TP implies 22x FY23E EPS, and we maintain a Neutral rating.


We expect TECHM to deliver growth in the mid-teens in FY22. We value the stock at 22x FY23E EPS and maintain Neutral.

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