Dolat Capital recommended accumulate rating on Tech Mahindra with a target price of Rs 650 in its research report dated July 07, 2020.
Dolat Capital's research report on Tech Mahindra
TechM Management has acknowledged the near term pain in the Network side of the business but remains hopeful of recovery in H2 led by continued commitment by Telecos on 5G rollouts. In the Enterprise segment the near term worries remains in the Auto/Aviation clients and certain Geo (China/Italy subsidiaries) that may take longer time to revive. TCV signings in FY20 were pretty strong at 3.7bn$ up 120% but most of these are already in the run rate and thus would not provide support in H1. However, as per our recent survey of key clients’ commentaries suggest commitment intact on Network/5G spends although may try to conserve cash for six months and reduce Capex for the year – but should normalize in H2. Commentary in the BFS has been in line with peers but in general is bit cautious on the discretionary side.
Outlook
TechM acquisition track record in the recent past has been terrible and has been one of the structural factor behind its lower than peer profitability/FCF profile (Exhibit 3). However, we believe its valuations at sub12x fairly captures the risk and thus any visible sign of business recovery to act as a trigger for the stock.
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