November 07, 2016 / 13:41 IST
TechM reported a healthy Q2FY17 with USD revenue growth of 4% QoQ (5% CC terms) led by better performance of telecom (+2.3% QoQ USD terms). EBIT margin dipped 50bps QoQ to 11.5% due to one time impact of non-recurring cost and adverse currency impact. We expect EBIT margin to remain in a narrow band of 12.5-13%. We believe a consistent outperformance on growth in telecom vertical will drive upgrades for the stock. We pare our earnings estimate by 6%/5.2% for FY18/FY19 on back of lower revenue/treasury income. We maintain Buy and rollover to Sep’17 target price of Rs 525 (Rs 590 earlier) based on 13x one-yr. fwd. PER.
Telecom vertical has reported a positive surprise (+3.4% QoQ CC) and we believe a seasonally strong H2 will support growth rates. Despite this beat Tech M will lag peers as we estimate a 5% YoY CC organic growth in FY17 which is lower than peers (7%-9% YoY). TechM is trading at inexpensive valuations of 10.8x/9.8x based on FY18/FY19. We pare our FY18/FY19 earnings estimates by 6%/5.2% factoring tad lower revenue/treasury income; Maintain BUY with a Sep’17 TP of Rs 525 based on 13x one yr. fwd. PER.
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