Buy Tech Mahindra; target of Rs 1200: Emkay Global Financial

Emkay Global Financial's research report on Tech Mahindra

TechM’s revenue slumped 4% QoQ (4.2% CC) to USD1.6bn, missing our estimates. EBITM declined by 440bps QoQ to 6.8%, well below our estimate even after adjusting for one-offs. The sharp decline in CME (-9.4% QoQ), owing to cut in discretionary spending and closure of network services projects, largely explains the revenue miss. Deal wins remain weak, and stand at USD359mn (TTM deal-intake down ~25% YoY). Mgmt attributed the weak performance to cut in discretionary spend/delay in decision making amid macro uncertainties. It expects performance to recover in H2. We cut FY24E EPS by ~17%, factoring-in a weak Q1 and near-term uncertainty, while lowering FY25- 26E EPS by <2%, in anticipation of demand improvement/better execution. TechM has failed to capitalize on its strength in the areas of communications, ER&D, BPO, XDS, etc, and deliver consistent performance in the past.

Outlook

We believe leadership change gives more credence to turnaround efforts, entailing better execution, sustainable margin expansion and scaling of BFSI & other verticals (ex-CME). We retain BUY; TP: Rs1,200, at 16x Jun-25E EPS.