Buy Tech Mahindra target of Rs 1237: Prabhudas Lilladher

Prabhudas Lilladher's research report on Tech Mahindra

TechM’s annual report titled “NXT.NOW – Experience the future now” outlines its strategy to enable clients experience the future of technology now. We believe TechM has rightly identified gaps and has set on path to transform itself - In ‘Repair phase’ (till FY21) it has identified strategic growth areas and is re-aligning itself to bring back growth focus. It has significantly improved its profitability too (EBIT margin of 10% in 4Q20 to 16.5% in 4Q21). In the ‘Rally phase’ (FY22) it aims to expand wallet share across clients as well as improve margins. Cost optimization and restructuring of acquired companies to turn them profitable will provide additional margin tailwinds (~50-70bps) apart from levers of pyramid optimization and automation. The third phase ‘Rise beyond’ involves building on efforts taken in previous phases and further accelerate growth momentum and margins.

Outlook

We value TechM at 17X on Sep-23 EPS (roll over) of INR 72.7 to arrive at TP of INR 1237 (earlier: 1085) with revenue & earnings CAGR of 11.9%/16.7% respectively. The company is currently trading at 18.8X/16.6X on EPS of INR 61.1/69.1 on FY22/23E respectively. Maintain ‘BUY’.

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