Buy Tech Mahindra; target of Rs 1042: Prabhudas Lilladher

Prabhudas Lilladher is bullish on Tech Mahindra has recommended buy rating on the stock with a target price of Rs 1042 in its research report dated October 26, 2020.

Broker Research

October 27, 2020 / 13:27 IST

Prabhudas Lilladher's research report on Tech Mahindra TechM reported strong revenue growth of 2.9% QoQ CC (Ple:1.9%, Cons:2.0%) & $ revenue growth of 4.8% (Ple:3.1%, cons: 4%) at US$1265.4mn. BPO saw strong growth rebound of 31.1%(contributing to 53% of incremental revs) & IT services growth was modest at 2.4% in $ terms. EBIT margins surprised us positively at 14.2% (Ple:12%, Cons: 11.3%)& tailwinds are i) +160bps each from supply side and demand side recovery, ii) +160 bps from cost optimization due to improve offshoring, higher utilization and lower subcontractions and iii) +70bps aided by normalization due to seasonality. Management guided that margins can remain stable & can improve further. We continue to believe that 5G opportunity will start from 2HFY22 & TechM will witness strong acceleration of revenue growth.

Outlook

We continue to value TM at 17X on Sep-22 EPS of INR 61.3 to arrive at a changed TP of INR 1042 (Old TP: 966) with revenue & earnings CAGR of 9%/14% respectively. TM is currently trading at 14.5X/13.2X at EPS of INR 58.4/64.2 on FY22/23E respectively. Maintain Buy.

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