ICICI Direct is bullish on Tech Mahindra has recommended buy rating on the stock with a target price of Rs 900 in its research report dated February 06, 2019.
ICICI Direct's research report on Tech Mahindra
Tech Mahindra (TechM) reported a healthy performance on all fronts in Q3FY19 with 4.3% constant currency revenue growth (vs. our estimate of 3%) and 50 bps margin expansion to 19.3% • US$ revenues grew 3.5% QoQ to $1261 million (vs. our estimate $1248.2 million) mainly led by growth in telecom (2.5% QoQ), manufacturing (5.6% QoQ) and BFSI (2.7% QoQ) • On the margin front, the EBITDA margin increased 50 bps QoQ to 19.3% led by 6.2% QoQ decline in SG&A expenses and benefit of increase in utilisation (+40 bps impact) partly offset by a change in onsite-offshore revenue mix and transition costs in deals • Reported PAT increased 13% QoQ to Rs 1,203 crore (above our estimate Rs 1,121 crore) led by better performance at operating level and lower tax rate (17.8% as a % of PBT vs 26.8% in Q2FY19).
Broad based revenue growth, margin expansion and healthy deal wins led to a strong quarter. Further, forward commentary of continued momentum in communication, strong TCV, digital growth and margin trajectory bodes well for profitability. Also, currently the stock is available at attractive valuation of 13x FY21EPS. Hence, we maintain our BUY rating on the stock with a revised target price of Rs 900 (~15x FY21E EPS).
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