Hold Tech Mahindra; target of Rs 1500: Prabhudas Lilladher

Prabhudas Lilladher's research report on Tech Mahindra

The revenue growth (+1.6% CC QoQ) exceeded our estimates (+0.5% CC QoQ), margins also outperformed our estimates by ~50bps in Q2. The revenue performance in Q2 saw steady recovery after two consecutive quarters of negative growth (in CC). The growth was dominated by selective pockets and clients, while Communications vertical de-grew 2.0% QoQ, implies Telcos under stress. Manufacturing reported solid growth (+5.1% QoQ), however the Automotive outlook remains bleak, especially on the commercial side. The deal TCV remains elevated in Q2 is a positive and a testament of putting efforts to scale “Must Have” accounts. The early signs are visible in scaling the high potential accounts (at least 17) to USD1m+, while pruning the tail and onboarding potential logos would be continued exercise going forward. On margins, we believe the cost optimization efforts would continue at a similar pace of FY25/FY26 with continued efforts to rationalize employee pyramid and leveraging project Fortius. We are baking in revenue growth of flat/+4.1%/5.2% CC YoY with margin improvement of 190bps/250bps/30bps YoY in FY26E/FY27E/FY28E.

Outlook

We roll forward to Sep’27 and assign 19x to arrive at a TP of Rs. 1,500. The stock is currently trading at 26x/20x FY26E/FY27E EPS, leaving no potential upside. Retain, HOLD.

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