IGI Logo

Our Take:

Tech Mahindra is focused on leveraging next-generation technologies including Blockchain, Cybersecurity, Artificial Intelligence, 5G and more, to disrupt and enable digital transformation, and to build cutting-edge technology solutions and services. Tech Mahindra could see improved spending on network operations, 5G, Cloud, AI and customer experience on the communication side in the longer term. Tech Mahindra also expects incremental opportunity in the automation and robotic process on the enterprise side and it could drive overall revenues going forward.

Besides, higher digital business on the enterprise side is expected to benefit the company in the long run. Its 3-4-3 strategy focuses on three mega trends- 1) Explosion of intelligent devices 2) Power of new technologies 3) Exponentiality of content consumption, four tech bets- 1) Experience.Nxt 2) Business.Nxt 3) Platforms.Nxt 4) Infra.nxt , which aims at achieving three outcomes/objectives for the customers 1) Run better 2) Change faster 3) Grow faster. In a digital economy, Tech Mahindra facilitates businesses to build nimble operating models that can help deliver integrated technology solutions.

Tech Mahindra’s net new TCV win stood at USD 1.04bn (the highest in the past five quarters) in Q4FY21 evenly distributed across Telecom (Telefonica) and Enterprise verticals. The company has strong deal pipeline, focus on large deal wins, traction in 5G spend (on communication & enterprise side). Revival of growth in manufacturing, acceleration in Europe and cloud is expected to drive revenues.

The company indicated strong deal momentum in Q1FY22, led by a strong deal pipeline, and likely to report a low double-digit growth in FY22, with double digit growth in enterprise and high single-digit growth in Communications. The company is heavily focused on investing in emerging technologies and solutions that enable digital transformation and meet the evolving needs of the customer. The ongoing digital-first and data-driven approach will continue to be a business imperative in the future as well. Over the recent past, Tech Mahindra has acquired various companies and collaborated with various partners.

Tech Mahindra has announced three acquisitions in Q4FY21 (1) 70% stake in Perigord Asset Holdings at US$ 25mn, (2) DigitalonUS with total consideration of US$120 mn, and (3) EventUs Solutions with total consideration of US$ 44mn. These acquisitions will enhance Tech Mahindra's capability in new edge technologies, and presence in geographies to develop cutting-edge digital solutions for its customers.

On 19 June, 2020, we had issued stock note on Tech Mahindra Ltd. Given healthy growth outlook and strong set of numbers in Q4FY21, we have now revised earnings and increased target price for the stock.

Valuation & Recommendation:

Tech Mahindra has established capabilities across verticals – Communication and Enterprise (Manufacturing, BFSI, Technology, Media and Entertainment (TME), Retail, transport and logistics (RTL), healthcare etc.). The company provides technologies and solution to more than one thousand active clients (with a ~92% repeat business in Q4FY21) spread across Americas, Europe and rest of the world. Its leadership in communication vertical could make it a key beneficiary of vendor consolidation in the segment. It would also benefit from 5G, AI, digital, Cloud and Network Operation opportunities.

Efficient operations, cost optimization and delivery automation will be the key focus areas going forward. We believe the base case fair value of the stock is Rs 1156 (17x FY23E EPS) and the bull case fair value of the stock is Rs 1224 (18x FY23E EPS) over the next two quarters. Investors can buy at LTP and add further on dips in the Rs 956-960 band (14x FY23E EPS). At the LTP of Rs 1056.5, the stock is trading at 15.5x FY23E EPS.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.hdfcsec.com/article/disclaimer-1795

SEBI Registration number is INZ000171337

Above views are of the author and not of the website kindly read disclaimer