Neutral Tech Mahindra; target of Rs 940: Motilal Oswal

Motilal Oswal's research report on Tech Mahindra

TechM's revenue growth of 2.9% QoQ CC was ahead of our expectations (1.5% QoQ). Growth was driven by the Enterprise business (4.3% QoQ) while Communications remained largely flat (0.8% QoQ) given the overhang in Network services. BPO (31.3% QoQ), which accounts for ~10% of the business drove more than half of the growth. Margin expansion of 410bp sequentially was a surprise. This was led by improvement in both supply/demand and operational efficiencies coming into play. New deal wins of USD421m were up sequentially. But, they were impacted by delay in few large deals and remained below average TCV in FY20 (USD900m+).

Outlook

We expect TechM to deliver single-digit growth in FY22 (unlike double-digit growth from its peers), which would lead to a lower P/E multiple. Hence, we value the stock at 20x FY22E EPS, at 25% discount to our target P/E for TCS. Remain Neutral.

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