Hold Tech Mahindra; target of Rs 735: ICICI Direct

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26 Aug, 2025 12:21

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ICICI Direct's research report on Tech Mahindra

US$ revenues grew 2.9% QoQ to $1244.3 million, broadly in line with our expectation of 2.5% growth and $1,239 million estimate Rupee revenues grew 3.6% QoQ to Rs 8,054.5 crore, above our Rs 7,973.4 crore estimate At 17.5%, EBITDA margins expanded 120 bps QoQ, way above our estimate of 16.7% and 40 bps expansion. Higher-than-expected margin expansion was mainly on account of a reduction in employee cost as a percentage of revenue (down 110 bps QoQ at 68.1%) Reported PAT of Rs 1,222 crore was way above our Rs 874.5 crore estimate led by better-than-expected margin and lower tax rate (18.6% in Q4FY18 vs. 21.8% in Q3FY18) The board has proposed a dividend of Rs 14 per share.

Outlook
Tech Mahindra (TechM) reported its Q4FY18 earnings wherein dollar revenue growth was broadly in line with our estimates while EBITDA margins were way ahead of our expectation. Enterprise continues to drive growth for TechM (19% YoY in FY18) while communication business softness still persists (-0.6% YoY in FY18). Going ahead, Tech Mahindra’s margin trajectory may improve from FY18 levels owing to employee pyramid, turnaround in performance of subsidiaries along with cost productivity enhancements. However, positives seem to be priced in the current price (~48% run up in the last six months). Also, the softness in communication continues to persist Hence, we maintain our HOLD rating on the stock with a revised target price of Rs 735 (15x FY20E EPS).
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