Buy Tech Mahindra; target of Rs 546: Edelweiss

Edelweiss' research report on Tech Mahindra

We recently met management of Tech Mahindra (TECHM). Key takeaways are: 1) Major headwinds in telecom are behind and expects revival hereon; 2) Robust revenue momentum in non-telecom business to continue; and 3) Margin revival (expanded 250bps in past 2 quarters) to persist; and 4) Successful implementation of cost rationalisation measures. We believe the worst is behind for TECHM in terms of both revenue and margins as LCC stabilises and Comviva bottoms out. While the stock has run-up a bit in the past quarter, we believe there is scope for further upside as the key deterrents of growth have faded with high possibility of positive surprises in telecom revenues.

Outlook
We expect TECHM to post revenue/EPS CAGR of 9.7%/10.6% over FY17-19. Return of telecom spends from top telcos could also surprise positively. At CMP, the stock trades at 12.5x FY19E EPS. We retain ‘BUY/SP’ with TP of INR546 (14x FY19E EPS).

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