Buy Tech Mahindra; target of Rs 1220: Sharekhan

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Sharekhan's research report on Tech Mahindra

Tech Mahindra stated that although it was seeing some pause in decision-making by clients due to the ongoing near-term global macroeconomic challenges, demand for business transformation projects among enterprise customers is expected to continue. The company expects EBIT margins to improve in FY24 (hit in FY23 by M&A, large deals and wage hikes) driven by operational efficiency, large deals and business & geo-mix changes. However, the company expects to reach FY22 EBIT margin levels only by FY26. The company identified Products & Platforms and Co-creation with customers as new business streams that would witness higher investments and expects 2x revenues in the next 2-3 years. The management reflected a stable to healthy outlook on all verticals particularly with greater optimism on Hi-tech vertical.

Outlook

The outlook for FY24 is likely to be uncertain as highlighted by the company due to concerns of delays in decision making on account of global headwinds with possibility of a slow gradual recovery. However, we maintain Buy on the stock with an unchanged price target (PT) of Rs. 1,220 given the industry leading growth in BPS business, stable to healthy outlook on its verticals and scope for margin improvement. We advise investors to adopt a staggered approach to invest from a long-term perspective.

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Tech Mahindra - 06 -03 - 2023 - khan