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Dolat Capital Report
Tech Mahindra Ltd.'s revenue stood at $1,589 million up 0.7% in constant currency (our estimate: 0.6%) as enterprise/communications biz. grew 1.4%/2.8% ($ terms) QoQ.
Operating profit margin stood at 9.6% (our estimate: 9%), up 110 bps QoQ. Adjusted profit after tax at Rs 9.2 billion (our estimate: Rs 10 billion).
Management stated that Tech spending environment remains stable with focus to prioritize margins over large deals. However, achieving 15% margin by FY27E looks stretched, in our view, due to the ongoing competitive intensity in winning deals.
We revise our FY25/FY26E adjusted earnings per share estimate (+1%/-3.4%) ex of one-time gain in Q2 (Rs 45 billion).
In view of the tall ask amid uncertain macro, we believe that risk to estimates are high and thus current rich valuations of 24 times (only 10% discount versus top-three) appear expensive.
Maintain โSell' rating with target price of Rs 1,530 at 22 times FY27E earnings.
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