Strong growth, deal wins, margin improvement gets analysts excited about Tech Mahindra
Tech Mahindra is trading at a discount to large peers despite improving growth profile, healthy deal wins and 5G opportunities.
Shares of the IT arm of Mahindra Group, Tech Mahindra touched a 52-week high of Rs 1,630.40, rising over 6% a day after the company posted its September quarter earnings. The company posted a consolidated profit after tax (PAT) of Rs 1,339 crore for the quarter ended September 2021, down 1.1% from Rs 1,353 crore registered in the previous quarter. Whereas on a YoY basis the profit jumped 25.8% from Rs 1,065 crore.
On the revenue front, the IT major reported a jump of 6.7 % at Rs 10,881 crore for the quarter, compared to Rs 10,198 crore in June 2021 quarter. On a YoY basis, the revenue was higher by 16.1% from Rs 9,372 crore reported in the same quarter last year.
EBITDA (Earnings Before Interest Tax Depreciation & Amortisation) for the company stood at Rs 1,995 crore, growing by 6.3% on a QoQ basis from Rs 1,876 crore and by 17.2% on a YOY basis from Rs 1,703 crore. Net margin for the company declined by 100 bps on a sequential basis to 12.3% and increased by 90 basis points on a yearly basis.
Here is what brokerages have to say about the Q2 performance and the company.
Jefferies | Rating: Buy | Price target: Rs 1,950
The global brokerage firm has upgraded the outlook on the IT firm from ‘Hold’ to ‘Buy’ on the back of revenue growth of 7.2% QoQ in constant currency terms helped the company to deliver steady margins. Besides the recent deal wins provides comfort on near term growth. It has also raised its revenue estimates for Tech Mahindra by 2-6% to factor in the beat and the improvement in the growth outlook for the communications and enterprise verticals.
Sharekhan | Rating: Buy | Price target: Rs 1,780
Given Tech Mahindra’s early investments in building capability along with people, partnerships and IP, and a strong client base, it is well-positioned to participate in the 5G opportunity across telecom service providers, ecosystems and enterprises. The company’s investments and multiple small acquisitions for enhancing capabilities in newer areas have resulted in consistent deal flow in the enterprise segment. At the current levels, the stock is trading at a reasonable valuation of 20x/18x its FY2023E/FY2024E earnings, at a discount to large peers despite improving growth profile, healthy deal wins and 5G opportunities the brokerage firm has increased its price target on the counter.
Antique Stock Broking | Rating: Buy | Price target: Rs 1,800
Tech Mahindra reported better than expected Q2 results while deal wins momentum remains strong and expected to improve. Both top-line and margins came in better than expectations; while management commentary alluded to strong deals and growth going forward. The brokerage firm has increased its FY23/24e EPS estimates by 2%/3% post better than expected 2Q results and increased target to 1,800 (from INR1,750) in line with EPS (Earnings Per Share) increase.
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