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Last Updated : May 22, 2019 11:07 PM IST | Source:

Buy Tech Mahindra; target of Rs 847 Prabhudas Lilladher

Prabhudas Lilladher is bullish on Tech Mahindra has recommended buy rating on the stock with a target price of Rs 847 in its research report dated May 21, 2019.

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Prabhudas Lilladher's research report on Tech Mahindra

Tech M had an impressive FY19 with EBITDA margins expanding by ~290bps YoY, strong TCV growth of 43% YoY to US$400mn in Q4FY19. Digital services grew 41% YoY and stands at 31% of the total revenues in FY19. Overall, Tech M has impressed us with broad-based growth, margin expansion & impressive free cash generation in FY19. EBITDA margins were 12.7% in Q1FY18 and have expanded to 18.4% in Q4FY19 which have also helped the stock to get double from that period. We believe expansion in the margins will be muted in coming quarters due to elevated attrition levels, supply side constraints, visa constraints & large transition cost which led to our margin cut by ~50-60bps in FY20E/21E. We believe Tech M margins should be in the range of ~18% in FY20E & FY21E. Even though margin expansion theme has played out, we believe inexpensive valuations (13.7X FY21E earnings) & 5G opportunity theme keeps us constructive. We expect 8.2% revenue CAGR & 8.0% EPS CAGR from FY19-FY21E respectively and value Tech M at 15X FY21E March earnings to arrive at a changed target price of Rs.847 (earlier Rs. 886).


Tech M is currently trading at 14.8X/13.7X FY20E/21E earnings at an EPS of Rs.52.3/Rs.56.5 FY20E/21E respectively. Maintain Buy.

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First Published on May 22, 2019 11:07 pm
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