Buy Tech Mahindra; target of Rs 1181: KR Choksey

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26 Aug, 2025 12:21

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KR Choksey's research report on Tech Mahindra

Tech Mahindra Ltd (TECHM) has received a net new deal win of USD 795 million and has a free cash flow for the quarter of USD 31 million. The revenue from operations has increased to INR 137,346 million in Q3 FY23 from INR 131,295 million in Q2 FY23, an increase of 4.61% on a QoQ basis and an increase of 19.94% on a YoY basis. The number of active clients has also increased to 1290 and the percentage of repeat business is in the range of 92% - 95%. The concentration rate for the top 5 and top 10 clients’ have also decreased to 18% and 27% respectively in Q3 FY23 from 23% and 31% respectively in Q2 FY23. The employee attrition rate has significantly decreased to 17% in Q3 FY23 from 20% in Q2 FY23 and 24% in Q3 FY22. The utilization rate (excluding trainees) has also been significantly improving to 86% in Q3 FY23 from 85% in Q2 FY23 and from 84% in Q3 FY22. The IT onsite revenue split has been steadily increasing from 27.1% in Q3 FY22 to 27.3% in Q2 FY23 and similarly, the offshore revenue split has been declining from 72.9% in Q3 FY22 to 72.7% in Q2 FY23. The company was awarded an ‘A’ rating in MSCI ESG ratings 2022.

Outlook

Tech Mahindra is currently trading at a valuation with a P/E multiple of 15.9x/13.3x on FY23E/FY24E 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 15.5x to the FY24E estimated EPS of INR 76.2 to arrive at a target price of INR 1,181, with an upside of around 16.4%. Accordingly, we have changed our rating to a “BUY” for “Accumulate” will maintaining same target price.

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Tech Mahindra - 01 -01-2023 - kr