Tech Mahindra: Communication-Led Revenue Growth In Q2; Growth Momentum To Sustain

BUY

CMP: Rs1524  |  Target Price: Rs1870

■    Tech Mahindra's Q2FY22 operating performance was better than expectations. Revenues grew 6.4% QoQ (7.2% CC) to USD1,473mn, led by Communication, Media & Entertainment (6.7%) and Enterprise (6.3%) verticals. EBITM remained flat QoQ at 15.2%.

■    Net new deal wins were robust, with a TCV of USD750mn, split across CME (USD255mn) and Enterprise (USD495mn). The deal pipeline remains healthy, and management expects healthy deal win momentum to continue in H2 as well.

■    Management remains confident of sustaining revenue growth momentum and EBITM in H2 on the back of broad-based demand, uptick in 5G-led spending, robust demand for digital engineering, cloud, data & analytics services, healthy deal intake, and deal pipeline.

■    We raise FY22-24E EPS by 1.3-2.6%, factoring in the Q2 beat and recently announced acquisitions. Maintain Buy with a revised Sep'22 TP of Rs1,870 at 25x Sept'23E EPS (23x earlier), reflecting higher medium-term growth assumptions.