Reduce Tech Mahindra; target of Rs 1600: Emkay Global Financial

Emkay Global Financial' research report on Tech Mahindra

TechM’s 1Q operating performance was slightly below expectations. Revenue grew 1.0% QoQ to USD1.56bn (down 1.4% CC), marginally missing estimates. With EBITM expanding by 60bps QoQ to 11.1%, TechM logged the 7th quarter of margin expansion, on disciplined execution and benefits accruing from Project Fortius, albeit a tad lower than estimated. Deal intake stayed strong for a 3rd straight quarter, with TCV of USD809mn driving 44% growth in deal intake on TTM basis. Revenue conversion was hit by a challenging macro environment, right-sizing field service business, reduced spending in Auto, and certain client run-offs leading to a slower start in FY26. However, the mgmt expects growth to improve Q2 onward, and certainly from H2, backed by deal wins and pipeline. The mgmt reiterated its 15% EBITM target for FY27, albeit suggesting risk from the prolonged period of an uncertain and tough macro environment.

Outlook

We cut FY26E-28E EPS by 2.4%-0.1%, factoring in the Q1 performance. Given the rich valuations, we retain REDUCE on TechM with TP of Rs 1,600 at 20x Jun-27E EPS.