Motilal Oswal's research report on Tech Mahindra
TECHM reported revenue of USD1.67b in 3QFY23, up 0.2% QoQ in CC terms (in line). Reported growth was 1.8% QoQ, led by Retail (+6.0 QoQ) and Technology (+3.3% QoQ). BFSI (-0.5% QoQ) and Manufacturing (flat QoQ) were soft. EBIT margin rose 60bp QoQ to 12% (vs our estimate of 11.6%). Q3 revenue softness was anticipated due to extended furloughs and the ongoing account pruning exercise to weed out low-margin and non-strategic accounts. Management indicated a total annualized impact of USD100-120m in FY23 from the exercise, which is now half completed. Additionally, top-5 accounts also remained soft due to internal restructuring at a key client, leading to slow ramp-ups and slow deal closure activities in Q3.
Outlook
We remain on the sidelines on TECHM as we feel the current valuations fairly factor in uncertainties around growth and margin. We marginally tweak our FY23/FY24/FY25 estimates. Our TP implies 15x FY24E EPS. We remain Neutral on the stock with TP of INR 1,020.
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