Dolat Capital recommended Accumulate rating on Tech Mahindra with a target price of Rs 880 in its research report dated May 22, 2019.
Dolat Capital's research report on Tech Mahindra
TECHM reported muted Q4FY19 results, which were largely in line with our estimates. The company’s communication business grew in Q4FY19, but fell 1% YoY in USD terms in FY19. This was below the management’s guidance of a low single digit growth. The management is confident of total revenue growth in FY20, but expects the communication business to contribute the bulk of the rise. TECHM should report a USD revenue growth of 8.5%/9.5% in FY20E/FY21E, as we believe healthy deal wins will raise revenue and lower volatility in the enterprise business. We expect TECHM to report a margins decline of 100bps in FY20E, as wage hikes, visa costs, and seasonality in Comviva are likely to impact margins in Q1FY20. We downgrade our earnings 4.8%/9.2% for FY20E/FY21E, as we factor in volatility in the enterprise business, lower margins, and a change in our USD/INR assumption to ` 70 (vs ` 74/` 76 for FY20E/FY21E earlier).
We downgrade TECHM to ACCUMULATE, with a TP of ` 880 based on 15x one-year fwd. PER.
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