SMC Global Securities has a buy call on Tech Mahindra with a target price of Rs 964.
The current market price of Tech Mahindra is Rs 776.45.
Time period given by the brokerage is one year when Tech Mahindra price can reach the defined target.
Investment rationale by the brokerage: Tech Mahindra is a leading provider of digital transformation, consulting and business reengineering services and solutions. It is the highest ranked Non-US company in the Forbes Global Digital 100 list (2018) and in the Forbes Fab 50 companies in Asia (2018).
The company has recently acquired a Japanese company- “K-Vision” through which it intends to leverage the local presence and expertise to build its network services business in Japan. Also, it has launched GAiA an open source Artificial Intelligence platform, which will enable enterprises across industry verticals to build, share and rapidly deploy AI-driven services. It has been constantly delivering steady growth in Enterprise and Communications business.
In Q3 FY19, the company added one client in the $50 million-plus bracket (nearly Rs 350 crores); one in the $20 million-plus bracket (nearly Rs 140 crores); two in the $10 million-plus bracket (nearly Rs 70 Crores) and 9 in the $1 million-plus bracket (nearly Rs 7 crores). Its active client count stood at 935 during the quarter. Management highlighted that deal wins in telecom were led by transformative deals in network and business model before the adoption of 5G and those in enterprise vertical were primary driven by digital transformational deals.
Revenues from top 5 accounts grew by 0.4 per cent QoQ and now accounts for 22.6 per cent of total revenues. Total Headcount at Q3 FY19 stood at 121,842 employees with a strong net addition of 3,451 employees. However, the attrition rate remained elevated at 21 per cent for Q3 FY19.
Its digital revenue moved to about 33 per cent showing a 10 per cent sequential growth in Q3 FY19. Its revenues came at Rs. 8943 Crores, up 3.5 per cent QoQ and up 15 per cent YoY. Constant currency revenues growth stood at 4.3 per cent QoQ. Onsite revenues accounted for 65.5 per cent of total revenues in Q3 FY19. EBIDTA margin for Q3 FY19 came at 19.3 per cent up 50bps QoQ, led by operational efficiency, higher utilisation and lower SG&A expenses.
Risk: Foreign Exchange fluctuation and high concentration of communications vertical in revenue.
Valuation: The company’s innovation, automation focus, growing organically and through inorganic acquisitions has placed it in a unique position to help customers transform for the future. Its intelligent network architecture, coupled with its proven DNA across Networks and Communication industry will be the differentiator where Company can go the extra mile. Thus, it is expected that the stock will see a price target of Rs 964 in 8 to 10 months time frame on a P/Ex of 17.75 times and FY20 EPS of Rs 54.31.