Buy Tech Mahindra; target of Rs 1330: Emkay Global Financial

Emkay Global Financial's research report on Tech Mahindra

Tech Mahindra posted another weak set of results—revenue declined 2.8% QoQ (2.4%, CC terms) to USD1.55bn, below our estimate. Reported EBITM declined by 210bps QoQ to 4.7% and adj. EBITM fell by 140bps QoQ, also missing our estimates. Weakness persisted in CME (down 4.9% QoQ), which is unlikely to see any near-term material recovery, with 5G spends not picking up. Deal wins improved QoQ to USD640mn, but stayed lower YoY due to weak discretionary spending and elongated sales cycle. Management has announced organizational restructuring, to simplify & streamline the business into six strategic units, for fostering deeper client relationships. It plans to share its detailed business plan and growth strategy with investors in Apr-24. We cut FY24E EPS by a sharp ~28%, factoring-in the Q2 miss and near-term weakness, while lowering our FY25-26 estimates by under 3%, anticipating recovery in performance as the new management’s strategy & execution starts showing results.

Outlook

We maintain BUY with revised TP of Rs1,330/share (from Rs1,360) at 18x Sep-25E EPS.