Hold Tech Mahindra; target of Rs 1100: Sharekhan

Sharekhan's research report on Tech Mahindra

Tech Mahindra reported revenue of $1667.6 million with constant currency (cc) revenue growth of 0.3% q-o-q beating our estimates of -0.2% cc revenue growth owing to muted growth across verticals. EBIT margin fell to 11.2%, down ~80 bps q-o-q, missed our estimates of 11.9% due to currency impact (60bps) and SG&A (90bps) offset by subcon reduction (70bps) Deal wins fell sharply with net new deal TCVs at $592 million, down 25.5% q-o-q. Management anticipates a cautious H1FY23 and expects better H2FY23. Company cited that they are witnessing delays in decision making with discretionary spending undergoing added lengths of evaluation.

Outlook

We downgrade Tech Mahindra to Hold with revised PT of Rs. 1100 as earnings outlook remains at risk given tepid outlook for H1FY24 on global macro headwinds and advise investors to wait for a better entry point. At CMP, the stock trades at 15.6x/13.3x FY24E/FY25E EPS.