Buy Tech Mahindra; target of Rs 900: Motilal Oswal
Motilal Oswal’s research report on Tech Mahindra
We hosted Manoj Bhat, CFO of Tech Mahindra, in Mumbai where he shed some light on the industry environment and TECHM’s outlook and strategic approach. Key highlights: Telecom is back on the growth trajectory due to multiple broad- based services deals. Action on the 5G rollout front – not as significant currently – is expected to accelerate CY20 onwards; lest there is positive disruption driven by some Service providers. Enterprise had a muted exit due to a couple of Healthcare deals spilling over into 1HFY20. This, combined with some near-term slowdown in Automotives (on weak macros) poses a challenge to mathematically achieving industry growth. Funnel of deals remain strong and conversions in 1HFY20 should improve the outlook. BPS has strong profitability and disproportionate growth is not a drag on margins. In recent quarters, even growth has turned around, and should remain high in FY20 as well. Margins are expected to remain at similar levels; operational efficiency and subsidiary profitability will help offset headwinds from wage hikes.
Our TP of INR900 discounts forward earnings by 15x. Maintain Buy.
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