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Last Updated : Dec 17, 2019 09:38 AM IST | Source: Moneycontrol.com

Brokerages bullish on Tech Mahindra; stock price rises marginally

Morgan Stanley has an overweight rating on Tech Mahindra with a target price at Rs 850 per share and said that the valuation is cheap at the current levels.

 
 
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Shares of Tech Mahindra opened with softer gains on December 17 even as most brokerages maintained their positive view on the stock a day after the analyst meet with Tech Mahindra's leadership.

In the analyst meet, Tech Mahindra reiterated its focus on the ‘three (main trends) – four (big bets) – three (objectives)’ strategy, said brokerages.

Morgan Stanley has an overweight rating on Tech Mahindra with a target price at Rs 850 per share and said that the valuation is cheap at the current levels.

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The foreign financial firm highlighted that the company is confident of the improvement in the deal pipeline for the communications business.

"We expect FY20 revenue growth at 6.7 percent and FY21 at 8-10 percent against 4.2 percent in FY19. With improving margin, earnings growth could be even better," said Morgan Stanley.

Nomura has maintained a neutral call on Tech Mahindra with a target price of Rs 775 and underscored that large deals in the last 4-6 quarters have driven communications and enterprise revenue growth.

Nomura added that the company guides for high-single-digit revenue growth in FY21 and aspires to deliver FY21 EBIT margin, similar to FY19.

In a report on December 16, domestic brokerage firm Motilal Oswal Financial Services said Tech Mahindra is likely to be a key beneficiary of BSS digitization and network services themes, given its competitive advantages and big bets in these areas.

Motilal Oswal added while currency, large deal transition costs and vertical headwinds have hurt the margins in FY20, delivery excellence, recouping transition costs and portfolio synergies may be the key margin tailwinds in FY21.

Moreover, as per the brokerage, the management of the company hinted at a meaningful improvement in employee engagement and a significant reduction in attrition over the last four months.

However, the management indicated that the normalised attrition levels of Tech Mahindra will be above the industry normal given the high share of BPO in the overall headcount (38 percent) and the higher attrition levels in this service line.

Motilal Oswal has a buy recommendation on Tech Mahindra with a target price of Rs 910.

"We keep our estimates unchanged for FY20 and FY21. The stock trades at 14 times one-year forward P/E, in line with its long-term average. Our target price implies a marginal re-rating to 15 times on the back of the decent near-term growth prospects despite slowing demand," said Motial Oswal.

As of December 16 close, the stock has gained 7 percent on BSE in the calendar year 2019 against an almost 14 percent gain of the benchmark Sensex.

Shares of Tech Mahindra traded 0.45 percent up at Rs 776.40 on BSE around 09:25 hours IST.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Dec 17, 2019 09:38 am
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