Buy Tech Mahindra; target of Rs 563: Edelweiss

Edelweiss' research report onTech Mahindra

Excluding network services, telecom business grew 7.0% for FY17, while enterprise business jumped 12.0%. This implies that all businesses have started recovering, although not enough to absorb LCC impact and drag in Comviva business, which management expects to reverse soon. We believe, LCC, after almost 50% decline, will stabilise now, although it will impact FY18 growth.

Outlook

We believe, excluding LCC, business is gaining traction and margin will also improve hereon spurred by higher utilisation, automation and nonrecurrence of LCC related expenses. We revise down FY18/19E EPS 10.0%/12.9% due to weak Q4FY17 margin and change in USD/INR assumption. Maintain ‘BUY’ with revised TP of INR 563 (INR 642 earlier).

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