Prabhudas Lilladher has given Buy recommendation for Tech Mahindra with a target price of Rs. 1862 in its research report issued on Oct 26, 2021

Prabhudas Lilladher’s research report on Tech Mahindra

Tech M reported revenue of USD1,472.6 mn growth of 6.4% QoQ USD, much above our and cons estimates (Ple: 4.2%, Cons: 4%). It includes ~1% contribution from full quarter consolidation of two acquisitions, viz. DigitalOnUs and Eventus. Growth was strong across Enterprise vertical +6.3% QoQ USD and Communications vertical +6.7% QoQ USD. Growth momentum is expected to continue given strong net new deal TCV of USD750 mn, 78% YoY and TTM net new deal TCV of ~USD 3 Bn, +25% YoY. 2H is seasonally strong for TECHM. EBIT Margins were resilient despite supply side pressures at 15.2%, flat QoQ (Ple: 15%, Cons:15.1%). Tailwinds from revenue growth leverage was offset by lower utilization including trainees (87%, -100bps QoQ) and higher sub-con costs (+52 bps QoQ). Management is confident on maintaining EBIT margins above 15% despite headwinds from supply side pressures and higher attrition (21%, +400bps QoQ) due to margin levers – i) offshoring, ii) G&A costs centralization for portfolio companies, iii) pyramid optimization (doubled intake of freshers in FY22) and v) revenue growth leverage.


Our EPS estimates increase by 5.4%/2.3% for FY23/24 led by revenue increase in revenue growth estimates for FY23 & FY24 and EBIT margin estimate for FY23. We arrive at DCF based target price of 1862 (implying target multiple of 18.5x on FY24 EPS). TechM is currently trading at 20X/18.5X earnings multiple on FY23/24 EPS of INR 75.8/82.5 on FY22/23E respectively, inexpensive. TechM has Revenue/EPS CAGR of 15.3%/12.8% over FY22-24. Maintain Buy.

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