Buy Tech Mahindra; target of Rs 817: KR Choksey

KR Choksey's research report on Tech Mahindra

Tech Mahindra reported good set of numbers in Q4 FY18, which were above our estimates in terms of revenue as well as margins. Dollar revenue was reported at $1,244 Mn (+2.9% QoQ) that is above our estimate of $1,233 Mn. EBIT margin reported at 13.8% (+108 bps QoQ) driven by improvement in operational levers: improved utilization 84% (100 bps QoQ),  increase in realization from IT services (+3.8% QoQ) and controlled employee expenditure.

Outlook
We have estimated the company's top-line to grow by 10.1%/8.3% in FY19E/FY20E. At a CMP of 703, the company is trading at a P/E of 16.8x and 15.1x in FY19E and FY20E respectively. We recommend a ”BUY” rating to the stock and assign a multiple of 17.5x to its FY20E EPS of INR 46.7 to come up at a target price of 817, an upside of 16% against CMP.

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