Recommendation CMP Target Price Time Horizon
Accumulate ₹ 1506 Rs. 1820 12 Months

Tech Mahindra Limited is a leading provider of digital transformation, consulting and business re-engineering services and solutions. It is a part of the $ 21 Billion Mahindra Group; a global federation of companies divided into 11 business sectors, providing insightful solutions at a global scale across 20 industries.

Key Highlights:

• Tech Mahindra focused on leveraging next-generation technologies including 5G, Blockchain, Cybersecurity, Artificial Intelligence, and more, to enable end to end digital transformation for global customers.

• It has entered metaverse with the TechMVerse launch, to offer interactive and immersive experiences to customers. The project is a part of the larger NXT.NOW framework that seeks to enhance the ‘Human Centric Experience’. TechMVerse will open up avenues for dealerships, NFT Marketplace and Gaming in general. NFT & metaverse are the future of digital transformation.

• Tech Mahindra drives 40% of the revenue from communication vertical which likely to drive growth for the company led by 5G technology spending by telecom operators. While the company’s Communication, media and Entertainment grew well, the company plans to make other verticals including BFSI, Manufacturing, health care and hi-tech a billion + verticals.

• During the quarter Q3FY22, revenue grew 5.2% QoQ driven by CME vertical. Communication, Media and Entertainment segment registered revenue growth of 6.2% in Q3FY22. Technology. Manufacturing & retail, transport & logistics (RTL) segment grew 2.8% and 13.5% QoQ. BFSI sector declined 1.6%

• Tech Mahindra’s operating margins came at 14.8 per cent in Q3FY22 compared to 15.2 per cent in Q2FY22 impacted by salaries hikes. Margins will improve going forward as the company has invested in pyramid formation (hire freshers and train them). It maintained 15% EBIT margin guidance for FY22.

• New TCV in Q3FY22 was strong at $704 mn, +55% YoY (vs average quarterly TCV of $550 USD mn in FY21). Enterprise TCV was at USD 478 mn (vs 495 mn in 2Q22) and Communication at USD 226 mn (vs 255 mn in 2Q22).



TechM having leadership position across sub-verticals with communication has strong growth opportunities in terms of modernizing Communication Service Providers’ network and 5G related network spends. The annual revenue run rate for the company stood at US $6bn and expected to soon become $7bn annual run rate company. In the long term, we believe Tech Mahindra will be a key beneficiary of 5G opportunities. On performance front we expect company to report EPS of Rs.66.2 for FY23E, at CMP of Rs1506 PE work out to be 23.8x. Hence, investors can buy the stock at CMP of Rs.1506 for target price of Rs1820. Time frame should be 9-12months.

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