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Hold Tech Mahindra; target of Rs 845: ICICI Direct

June 25
23:25 2019

ICICI Direct’s research report on Tech Mahindra

Tech Mahindra (TechM) reported a below expected performance on the operational front. The subdued performance in Q4FY19 revenues was mainly due to a decline in enterprise segment (led by seasonality in retail, cut down of less profitable projects, revenue pressure in healthcare and lower growth in financial segment). Further, EBITDA margins declined 80 bps QoQ mainly led by rupee impact and one off provisions of 30-40 bps. Adjusted for one offs, EBITDA margins were at 18.7% (still below our estimate of 19.0%).

Outlook

Improving growth trajectory in communication and healthy deal pipeline are key positives. However, slower growth in enterprise revenues, absence of currency benefit and higher wage hike compared to prior year are expected to keep revenues and margins under check in the near term. Further, trade war uncertainty could play spoilsport for communication growth (not factored in our estimates). Hence, we revise our rating to HOLD with a revised target price of Rs 845/share (~15x FY21E EPS).

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