Foreign brokerage CLSA sees a case for continued rerating for the stock. It said the strong Q2 beat, sustained growth outlook and improved capital return could support valuations further despite a 32 per cent rerating in the last three months. Tech Mahindra trades at a 25 per cent discount to
compared with a 5-year median of 22 per cent, CLSA said while suggesting a target of Rs 1,720 on the stock.
Citi, meanwhile, has raised its target price for Tech Mahindra to Rs 1,765 from Rs 1,655 while maintaining a ‘Buy’ rating on the stock. This foreign brokerage said it was a strong quarter on all parameters – growth, margins, deal TCV and highlighted that execution has been strong over the past few quarters as well.
The stock on Tuesday rose 6.88 per cent to a record high of Rs 1,629.40 before coming down a bit.
The IT major reported a 25.8 per cent year-on-year (YoY) jump in net profit at Rs 1,338.70 crore for the September quarter compared with Rs 1064.60 crore in the same quarter last year.
Revenue for the quarter jumped 16.1 per cent YoY (up 6.7 per cent QoQ) to Rs 10,881.30 crore compared with Rs 9,371,80 crore in the year-ago quarter. In dollar terms, revenue came in at $1,472.6 million, up 16.4 per cent YoY or 6.4 per cent sequentially. Revenue growth in constant currency terms stood at 7.2 per cent, the IT firm said in a BSE filing.
New deal wins stood at $750 million, including a multi-year strategic deal.
“Given its early investments in building capability along with people, partnerships and IP, and a strong client base, TechM is well-positioned to participate in the 5G opportunity across telecom service providers, ecosystem 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,” Sharekhan said.
At this price, the stock is trading at 20 times FY23 and 18 times FY24 earnings, which is at a discount to large peers despite improving growth profile, healthy deal wins and 5G opportunities, Sharekhan said while revising its price target for the stock to Rs 1,780.
The management remains confident of sustaining revenue growth momentum and Ebit margin in the second half of the financial year. It sees an uptick in 5G-led spending, robust demand for digital engineering, cloud, data & analytics services, healthy deal intake, and deal pipeline.
“We raise FY22-24 EPS by 1.3-2.6 per cent, factoring in the Q2 beat and recently announced acquisitions. We maintain Buy with a revised September target of Rs1,870 at 25 times September 2023 EPS (23 times earlier), reflecting higher medium-term growth assumptions,”
said.
Edelweiss has also raised its target on the stock to Rs 1,825 from Rs 1,751, led by a strong execution while rolling over to Q4FY23.
