Buy Tech Mahindra; target of Rs 1040: ICICI Direct

ICICI Direct's research report on Tech Mahindra

Tech Mahindra’s (TechM) revenues increased 2.9% QoQ in constant currency terms (above our estimate of 1.1% QoQ in CC terms) mainly led by 0.8% QoQ growth in communication revenues and 4.3% QoQ growth in enterprise revenues. The company also reported a healthy expansion in EBITDA margins (up 397 bps QoQ to 18.2%) mainly led by higher utilisation, offshoring and rationalisation of SG&A expenses. The order book improved 45.2% QoQ to US$421 million.

Outlook

The company is well poised to capture improving IT spend in communication and digital traction on the enterprise side. Further, in the long term, we believe TechM will be a key beneficiary of 5G opportunities. This, coupled with improving margin trajectory led by cost rationalisation prompt us to revise EPS estimates upwards. Hence, we maintain BUY with a revised target price of Rs 1040 (15x PE on FY23E EPS).

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