Buy Tech Mahindra; target of Rs 1447: 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) Q4FY22 performance was marginally higher than with our estimate. Dollar Revenue was up 4.9% QoQ and in CC term grew by 5.4% QoQ to USD 1,608Mn (KRChoksey est. USD 1,604Mn). Rupee revenue grew by 5.2% QoQ to INR 1,21,163Mn (KRChoksey est. INR 1,20,635Mn), driven by growth in communication/enterprise at 4.8%/5.8% in constant currency term with ~2.5% contribution from M&A. TCV deal win grew by 43.6% QoQ to USD 1Bn in Q4, was driven by telecom (TCV of USD 645Mn after AT&T deal) and enterprise (TCV of USD 366Mn). Reported operating margin contracted by 159bps QoQ to 13.2% , due to impacted by lower utilization, higher salary & retention cost, and higher depreciation & amortization charge. Enterprise was led by inorganic contribution which showed up in BFSI (18.4%) and technology (15.1%) verticals. Reported Net profit grew by 10% QoQ to INR 15,056Mn with margin of 12.4%. Though management believes that there will be improvement in profitability due to better pricing but we expect that there is a limited scope for improvement due to seasonality and wage hike (July) impacts. Our target price of INR 1,459 is based on 18x Mar-24E EPS with EPS CAGR of 13.4% over FY22-24E.

Outlook

Tech Mahindra is currently trading at a valuation with a P/E multiple of 18.6x/15.6x on FY23E/FY24E earnings. We expect strong deal momentum across verticals, tailwind in 5G & digital product engineering and clients centric approach will aid growth over the medium to long term in future and hence we are assigning a P/E multiple of 19x to the FY24E estimated EPS of INR 76.2 to arrive at a target price of INR 1,447 (Earlier price of INR 1,770), with an upside of 21.6%. Accordingly, we maintain our rating to a “BUY” to the stock.

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