ICICIdirect.com's report on Tech Mahindra Technical Outlook
The stock remains in a well channelled up trend and is seen resuming its next up leg after a month long breather offering a fresh entry opportunity to medium-term players.
The corrective dip off the life-time high of Rs 2995 was anchored at the key support marked near Rs 2740 and resulted in a bullish double bottom formation reiterating consistent buying support near the value area.
The robust price structure in the existing up trend is clearly visible in the fact that rallies are faster while declines have been time consuming and highlighting the corrective nature of the same. This price/time behaviour corroborates the bullish view in the stock.
We believe the stock has concluded a healthy corrective decline and offers a favourable reward/risk set-up to ride the next up move. We expect the stock to head towards Rs 3500 being the 150.8% extension of the preceding up move from Rs 2460 to Rs 2995 as projected from the recent trough of Rs 2740.
Fundamental Outlook
TechM reported robust 4.9% constant currency (CC) growth in Q3 led by manufacturing, Europe and offset by softness in telecom and de-growth in top 5 customers. Total 3.7% constant currency (CC) growth excluding MES contribution (~$10 million, ~1.2%) was also healthy in a seasonally soft quarter. Generally, management commentary suggests the demand environment across geographies & verticals, and deal pipeline continues to be encouraging. TechM signed deals worth ~$1.9 billion in TCV in the past seven quarters as it continues to see good traction in the network services segment and is getting invited to larger deals, than earlier, on the enterprise side.
We expect TechM to report rupee revenue, PAT CAGR of 20%, 13% in FY14-17E (average 19.3% EBITDA margins in FY15-17E), vs. 13%, 19% reported in FY08-13 (average 21.9%), respectively, driven by traction in enterprise and communications business, healthy order pipeline and large deal ramp-ups.
Strategy: "Buy Tech Mahindra in the range of Rs 2870.00-2930.00 for a target of Rs 3490.00 with a stop loss below Rs 2695.00 on a closing basis", says ICICIdirect.com research report.
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