What should you do with Tech Mahindra stock post Q1 results? Here's what brokerages say
Most brokerages revised their earnings estimate upwards as Tech Mahindra delivered on all fronts be it margin, capital allocation, deals & revenue
Shares of Tech Mahindra surged 8.92% to Rs 1,228.35 a day after the company reported a 39.2% rise in consolidated net profit at Rs 1,353.2 crore for June quarter 2021-22. It had registered a net profit (after minority interest) of Rs 972.3 crore in the year-ago period.
Revenue stood at Rs 10,197.6 crore in the quarter under review, up 12% from Rs 9,106.3 crore in the year-ago period.
In dollar terms, net profit grew 42.2% to $183.2 million, while revenue rose 14.6% to $1,383.6 million from the year-ago period. Tech Mahindra’s total headcount stood at 1,26,263, up by 5,209 on a sequential basis.
So here is what brokerages have to say about the company’s performance.
Kotak Institutional Equities | Rating: Buy | Price target: Rs 1,425
Tech Mahindra reported all-around revenue growth, healthy margin outperformance and good deal wins. More importantly, the communications vertical is showing signs of a sustainable recovery courtesy of modernisation and 5G readiness deals and will grow in double digits after many years.
Kotak Institutional Equities expects mid-teens revenue growth at 15%+ EBIT (earnings before interest & tax) margin in FY2022E. It has raised FY2022-24E EPS (earnings per share) by 5-7% and FV to Rs1,425, valuing the stock at 19X June 2023E EPS.
Sharekhan | Rating: Buy | Price target: Rs 1,300
Tech Mahindra reported a strong set of numbers for Q1FY2022, beating on all fronts, led by strong growth across key markets and verticals. Given this, Sharekhan has raised its earnings estimates upward for FY 2022-24 due to a strong all-around performance in Hune quarter, healthy deal wins, and a strong deal pipeline in the communication vertical. TechM is well invested in capturing opportunities from the expansion of the 5G value chain across networks and IT services from both telecom service providers and enterprises.
The stock is trading at a reasonable valuation of 18x/16x/14x its FY2022E/FY2023E/FY2024E earnings, at a significant discount to large peers despite healthy deal wins, 5G opportunities, and scope for margin improvement. The brokerage firm assumes Tech Mahindra would continue to generate higher free cash flow (FCF) in the coming years, which would increase dividend/buyback payouts.
Motilal Oswal | Rating: Neutral | Price target: Rs 1,220
Motilal Oswal continues to stay on the sidelines on Tech Mahindra as we see its stronger business performance as balanced by elevated operational metrics in a supply-constrained environment. The brokerage would also await clarity on the impact of 5G spend on growth, given the repurposing of budgets in 5G, which should taper down the momentum unlike previous cycles.
Yet it has raised it FY22E/FY23E EPS estimate by 3-5% while its price target implies 17x FY23E EPS.
(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)