Reduce Tech Mahindra; target of Rs 1020: HDFC Securities

HDFC Securities recommended reduce rating on Tech Mahindra with a target price of Rs 1020 in its research report dated July 26, 2023.

Broker Research

July 29, 2023 / 21:43 IST

reduce

HDFC Securities' research report on Tech Mahindra

Tech Mahindra’s (TECHM) disappointing Q1 performance has elements that could take longer to recover. While the dismal levels of margin are the bottom, its recovery trajectory can be protracted. The slip in Q1 revenue of -4% QoQ was largely led by the CME vertical (38% of revenue) which dropped 9.5% QoQ, while the Enterprise segment delivered in line with peers (flat sequentially). The decline in the CME vertical was a combination of impact on network services, lower discretionary spend, and transition-delay between project completion and project/phase starts. The margin was impacted by certain oneoffs pertaining to provision towards client-specific situations (-200bps impact).

Outlook

We downgrade TECHM to Reduce (ADD earlier) with a TP at INR 1,020 (14x Jun-25E EPS) as recovery in growth/margin may be protracted on sub-par bookings and near-term challenges in CME vertical may persist for longer (recent instances of deals from large customers going to competition as well as business challenges for telcos).

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