Prabhudas Lilladher has given Hold recommendation for Tech Mahindra with a target price of Rs. 1042 in its research report issued on Jul 26, 2022

Prabhudas Lilladher’s research report on Tech Mahindra

TechM reported revenue of USD 1632mn, 1.5% QoQ USD (Ple: 1.2%, Cons: 1.1%) and 3.5% QoQ CC (Ple: 2.7%, Cons: 2.8%). Growth is healthy in CC terms, for both Communications (3.9% QoQ CC) and Enterprise (3.2% QoQ CC). Net new TCV was muted at USD 802mn (-1.6% YoY, -21% QoQ). In Communication- demand is driven by automation, data integration on cloud and network modernization. Deal pipeline is healthy with no signs of sector wide slowdown in tech spends. However, management indicated that there may be reprioritization of spends for specific customers. EBIT margin declined further to 11%, -220bps QoQ, -411bps YoY. In Q2FY23, annual wage increment is expected to have 100bps impact on margins. Management expects margins to improve from Q2FY23 and targets to reach 14% margin by Q4FY23 led by tailwinds from utilization, offshore mix and operating efficiencies. Plus, seasonal and one-off costs in Q1 will not be there in Q2.


Our EPS estimates decrease by 5%/2% for FY23/24, led by cut in margin estimates. We continue to value TechM on TM of 15x to arrive at TP of Rs.1042. TechM is currently trading at 17x/15x on FY23/24 EPS of INR 59/69 with Revenue/EPS CAGR of 10.4%/4.6% over FY22-24. Maintain Hold.

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