Prabhudas Lilladher is bullish on Tech Mahindra has recommended buy rating on the stock with a target price of Rs 535 in its research report dated November 01, 2017.
Prabhudas Lilladher's research report on Tech Mahindra
Tech M’s 2QFY18 results were inline with our estimates on revenues but delivered a beat on EBIDTA margin and PAT. Revenues at USD1179.2mn were up 3.6% QoQ and marginally above our estimates (PLe: USD1177mn). Revenues grew by 2.5% QoQ organically in USD (1.2% Organic growth in Constant Currency). Telecom vertical revenues (~43.7% of total revenues) were flat QoQ while Enterprise vertical (~57% of total revenues) grew by 6.1% QoQ (4% Organically). EBIDTA margin for the quarter came 14.5% up 180bps QoQ and above our estimates (PLe: ~13.5%). PAT came Rs8362mn was 19% above our estimates aided by margin beat and higher other income. Company reported second sequential quarter of headcount reduction in IT service segment. This has been the key driver for margin improvement. IT services Headcount came at 75,587 employees which represent a net decline of 3,400 employees QoQ. Tech M indicated of continued focus on margin improvement over coming quarters. Tech M has entered into an IP deal for Cloud and Virtualization product and would pay USD140mn for the deal (USD35mn paid in 2QFY18 and remaining to be paid in equal installments over a 12 quarter period). However, company indicated that it would give more details on this deal in 3QFY18.Outlook
TP raised by 7% to Rs535/sh (13x Sep19E EPS vs 13x FY19E EPS earlier). Retain BUY
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