IGI Logo

Tech Mahindra Ltd. reported Q1FY25 revenues at $1,559mn, growth of 0.7% QoQ and degrowth of 6.4% in cc terms. In USD terms, revenue was up 0.7% QoQ but down 2.6% YoY. In INR terms, revenue stood at INR130bn, up 1.0% QoQ but down 1.2% YoY. Growth was broad based across verticals except for Communications industry, where there were headwinds. PAT for the quarter came at INR8,515mn (+23.0% YoY) with EPS at INR9.6. The reported net new deals stood at $534mn for the quarter and was well diversified in terms of industry verticals and key regions.

*  Progress around Scale at Speed and GenAI: Clients across the globe have emphasized their need for a partner that can provide the unique combination of global reach and scale and agility, TechM which is a beneficiary of. Management has made significant progress in aligning into the new service line structure in Q1. In BFSI, the company is seeing new opportunities within its existing accounts and has also secured new clients. Company is seeing increased spending across asset and wealth management, cards and payments, retirement risk and compliance insurance in US. TechM’s “verifAI” addresses the need for a robust validation and assurance framework for AI systems. Without this framework, there is a continued reliance on humans in the loop to validate outputs of AI programs. On the AI front, more than 25,000 of the associates have now been enabled with AI led pair programming skills. It also offers more than 100 AI based solutions across AI Ops, computer vision, workplace automation and more. TechM shall soon have the largest DM forum certified talent pool in the CSP IT service provider ecosystem. Given its leadership and deep expertise in the sector, it anticipates benefiting from the cost rationalization related consolidation activity across regions.

*  Priority segments: Company sees an opportunity to grow faster in Americas (where they are underweight compared to peers) and will continue its focus on Europe where it has a strong position and deep long term client connects and therefore, it is prioritizing sales investments towards focus markets. From a vertical perspective, Telecom has been a strength and hence company is investing in client services to grow its wallet share and be a partner of choice. Despite near term challenges, there is significant opportunity for digital services including cloud and payment infrastructure. From a service line perspective, company is making investments in AI space.

*  EBIT Margins to expand: Operating (EBIT) margins for Q1FY25 came at 8.5%, up 110bps QoQ due to cost saving efforts under project Fortius and continued focus on operational efficiencies. The company has initiated targeted programs aimed at enhancing the efficiency of its operations, including pyramid optimization, utilization improvement, subcontracting expenses reduction and value-based pricing. A lot of effort in bringing down the average resource cost by consistently inducting pressure has started to act as an important lever. From these efforts, on an average a $250mn shall be saved.

Valuation: For FY25E, management looks forward to improvement in clients spending, which fuels optimism for a better revenue performance ahead. Since the stock has rallied ~8% in last month, we downgrade our rating to REDUCE to arrive at a target price of INR1,570 implying a P/E of 27x (modified) on FY26E EPS of INR58.

For Detailed Report With Disclaimer Visit. https://choicebroking.in/disclaimer
SEBI Registration no.: INZ 000160131