Buy Tech Mahindra; target of Rs 740: HDFC Securities

HDFC Securities's research report on Tech Mahindra

Tech Mahindra delivered poor revenue growth in 1QFY19 while margin performance was better than expected. Revenue stood at USD 1,224mn (-1.6% QoQ, +0.3% CC), vs our estimate of USD 1,228mn. Enterprise (+1.8%, +3.8% CC QoQ) continue to drive growth led by traction in Manufacturing (+2.5% QoQ) and BFSI (+2.9%). Digital (27% of rev, +30% YoY) is growing in-line with industry average and is driving enterprise growth. Telecom (39.6% of rev, -6.3% QoQ) is dragging overall revenue growth; however management sees it as a seasonal blip and expect recovery form 2QFY19E based on deal wins at the end of the quarter. Deal TCV stands at USD 260mn, out of which ~50% is Telecom.

Outlook

We’ve factored USD revenue growth of 7.6/10.6% for FY19/20E, implying revenue CQGR of 3.2/2.2% for FY19/20E and factored EBITDA% at 16.7/17.1%. Maintain BUY with a TP of Rs 740 based on 15x FY20E EPS.

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