Accumulate Tech Mahindra; target of Rs 1207: KR Choksey

KR Choksey's research report on Tech Mahindra

Tech Mahindra Ltd revenue for Q1FY24 stood at INR 1,31,590 mn, registering a growth of 3.55% on a YoY basis from INR 1,27,079 mn and on a sequential basis it declined by 4.08% from INR 1,37,182 mn. The EBIT for Q1FY24 stood at INR 8,914 mn, which showed a decline of 36.48% on a YoY basis from INR 14,034 mn and on a QoQ basis it declined by 32.36% from INR 13,178 mn. The operating margin for the quarter came at 6.77%, which shown a decline of 284 bps on a sequential basis and 427 bps on a YoY basis. PAT for Q1FY24 stood at INR 7,036 mn, which showed a decline of 38.81% on a YoY basis from INR 11,475m mn and on a sequential basis it declined by 38.03% from INR 11,250 mn. The PAT margin for the quarter stood at 5.35%, which declined by 285 bps on a sequential basis and 368 bps on a YoY basis. The EPS for the quarter stood at INR 7.82 as against INR 12.62 sequentially and INR 12.78 in a YoY basis.

Outlook

Tech Mahindra is currently trading at a valuation with a P/E multiple of 17.7x/13.0x on FY24E/FY25E earnings. The story is premised on pipeline commentary, improved services portfolio (design, engineering and consulting) & acquisition synergies, and 5G-related spending and reduction in the attrition rate and hence we are assigning a P/E multiple of 14x to the FY25E estimated EPS of INR 86.2 to arrive at a target price of INR 1,207, with an upside of around 7.7%. Accordingly, we kept our rating to a “Accumulate” for the stock.