Target: ₹1,724

CMP: ₹1,441.70

Tech Mahindra develops and markets computer software. The company markets software for telecommunications equipment manufacturers, telecom service providers, software vendors, and systems integrators.

Topline rose 18.7 per cent y-o-y to ₹11,451 crore in Q3FY22 (+5.2 per cent q-o-q) driven by robust demand across all segments.

EBITDA margin shrank 160 bps y-o-y to 18 per cent (-30 bps q-o-q) on lower margin product mix and increased costs on the supply side and lower utilisation. PAT grew by modest 4.5 per cent yo-y to ₹1,369 crore (+2.2 per cent q-o-q).

Ahead of Indian and Mexico supply market, Company extended its supply base to new infant cities- Romania, Costa Rica, Latvia, Belarus for better product quality and lower costs. Moving forward, owing to the Blockchain investment in Europe, the company will better perform with familiar names like Web 3.0, NFT and Metaverse combined with the connectivity solutions around 5G and some of the user applications.

While on the Geographical revenue front, America grew to 48.9 per cent vs 47.8 per cent in Q2-FY22 and Europe and rest of the world declined by 40bps and 30bps q-o-q respectively.

We expect company to perform well in upcoming quarters on the back of improvement in EBIT margins, restructuring within the segments and with continued pace of deal wins. Hence, we reiterate our Buy rating on the stock with a rolled forward target price of ₹1,724 based on 19x FY24 adj. EPS.