Accumulate Tech Mahindra; target of Rs 1530: Prabhudas Lilladher

Prabhudas Lilladher's research report on Tech Mahindra

The performance on the topline (-1.5% CC QoQ) was below our estimates (+0.3% CC QoQ), while the execution on margins was strong, exceeding our expectations by 30bps QoQ. The decline in revenue was led by unanticipated delays in renewals within Hi-Tech, which partly supported by strong momentum in BFSI (+2.5% QoQ). The management demonstrated one-year milestone of stabilizing growth and scaling profitability, while showcasing the additional efforts that need to be put in FY26 to achieve the FY27 goal. The operational strength achieved in FY25 is remarkable, which is evident through robust improvement in deal TCV USD2.7b (+42% YoY), while achieved revenue growth of 0.3% YoY CC in FY25. The company also weeded out 100bps of revenue in FY25 that was either non-strategic in nature or below qualification. It has been very selective and established guardrails to go behind strategic accounts, it added 45 “must have” accounts to further rescale and mine for higher wallet share. However, the management also indicted of macro related slowdown, which is evident in Manufacturing, Retail, and Hi-Tech, while US telcos are under economic stress.

Outlook

However, we believe the cost optimization efforts would continue at a similar pace of FY25 with continued efforts to rationalize employee pyramid and infusing multiple variants of AI. We are baking in revenue growth of -1.1%/+3.0% CC YoY with margin improvement of 240bps/250bps YoY in FY26E/FY27E. We assign 20x its FY27E EPS that translates to a TP of INR1,530. Retain, ACCUMULATE.