Tech Mahindra share prices fell over 3% on Wednesday even as most brokerages reiterated ‘buy’ ratings on the stock citing traction in 5G and digital technologies, consistent deal wins and margin recovery, among others positives. The software services exporter on Tuesday reported a 4.5 per cent on-year rise in its consolidated net profit for the December quarter at Rs 1,369 crore. Its revenue and operating income also rose over the previous three months. Tech Mahindra stock was trading 3.24 per cent down at Rs 1,458 on the Bombay Stock Exchange on Wednesday morning.
5G remains a big opportunity for the IT major and deal wins are in areas of network, cloud, data and IoT. The margin expansion levers are limited, due to high attrition, increase in subcontracting cost and ongoing fresher hiring, according to HDFC Securities Institutions Equities research report.
Stock Talk: Brokerage calls on Tech Mahindra stock and target prices
JM Financial: BUY
Target price: Rs 1,900
Analysts at JM Financial Services believe that Tech Mahindra’s 3QFY22 earnings suggest improving trajectory in the Communications vertical even as company’s Enterprise business took a breather on a sequential. “Company remains confident of sustaining 15% EBIT margins in FY22 and sees stable margins in 4Q aided by operational efficiencies. We moderate margin assumptions driven by 3Q miss and thereby cut FY22E-24E EPS by 2.5-4.5%,” the brokerage firm said in a note post results. While acknowledging the 3Q miss, JMFL keeps faith in the 5G spend-led recovery in Communications in addition to underlying trajectory in the rnterprise business corroborated by deal wins. It reiterated BUY rating on the stock with a revised target price of Rs 1,900.
Kotak Securities: BUY
According to Kotak Securities Analysts, Tech Mahindra has multiple engines that will power growth over the next two years. These engines 5G deals on networks, digital and cloud and core applications, BPO, gains from legacy CX players, expanding portfolio of capabilities and strong value proposition, Experience Design Services (XDS). “Greater IT infusion in CX and marketing spends is driving industry demand. XDS accounts for 12-13% of TM’s revenues or US$600-650 mn in revenue run rate. The company has presence in engineering services, a segment of high growth potential. However focus and a steady hand are required to unlock growth potential,” the brokerage firm said in its note. It maintained BUY rating on Tech Mahindra stock.
Motilal Oswal Financial Services: Neutral
Target price: Rs 1,600
Tech Mahindra’s high exposure to the Communications vertical remains a potential opportunity as a broader 5G rollout could lead to a new spending cycle in this space, according to MOFSL analysts. They further believe that the company is seeing traction in 5G investments. “We expect margins to remain stable in FY22 and decline 40bps in FY23. We expect TechM to deliver growth in the high teens in FY22,” it said in a report. Analysts continue to stay on the sidelines on the company since they see stronger business performance as balanced by elevated operational risks in a supply constrained environment. The domestic brokerage house maintained Neutral rating on the stock.
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