Buy Tech Mahindra; target of Rs 3200: Motilal Oswal

Motilal Oswal's report on Tech Mahindra

"TECHM’s 3QFY15 constant currency revenue growth of 4.9% QoQ was marginally ahead of our estimate of 4.2%. Excluding contribution from integration of Mahindra Engineering Services, organic constant currency revenue growth was 3.8% QoQ, led by Enterprise segment this quarter. EBITDA margin is 20.2% in line with our estimate of 20.3%. PAT before special adjustments (excluding 1HFY15 MES profits) is INR7.77b, +8% QoQ, below our estimate of INR7.97b. Lower PAT was on the back of Other income at INR190m, compared to our estimate of INR827m."

"At 17.1x FY16E and 14.4x FY17E EPS, the stock is above its 5-year average, justifiably given the improvement in revenue growth and margins following merger with Satyam; and increasing irrelevance of the pressures in BT. Our Target Price of INR3,200 discounts FY17E EPS by 16x, following expectation of sustained above-industry growth over the medium term. We maintain Buy, even though upside in the near term could be limited after ~61% LTM return", says Motilal Oswal research report.

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