Tech Mahindra Gets A 'Hold' Rating From IDBI Capital After Q2 Results; Here's Why

IDBI Capital Report

Tech Mahindra Ltd. posted a revenue of $ 1,589 million, up by 0.7% constant currency QoQ beats the streets’ estimates (~1.3% more than our expectation), mainly driven by communication, TM&E and Retail, Transport and logistics and Europe/rest of world.

Despite softness, company is focused on strengthening its client relationship and expanding the partner ecosystem. Operating margin expanded by 110 bps to 9.6% on the back of operational excellence through Project Fortius.

Due to weak discretionary spending environment, company is prioritizing on cost saving projects, partnership with existing clients, adding new logos and focus on better utilization of existing capabilities to drive the growth.

Net new deal total contract value during the quarter stood at $ 603 million and was broad based including cards and payment services, Temenos T24 implementation (transformation of core banking) etc.

Furthermore, the company emphasizes on building service line capabilities and partnership with hyper-scalers and ISVS. However, we expect turnaround period to elongate due to continued softness in discretionary coupled with seasonality impact.

We assume coverage with a target price to Rs. 1,778 with a Hold rating due to sharp rally in the stock prices in the recent past.

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