Tech Mahindra Q1 Results Review -Inline; Focus On Prioritizing Margin Over Growth: Dolat Capital

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Dolat Capital Report

Tech Mahindra Ltd.'s constant currency revenue grew by 0.7% in CC (versus our estimate: 0.5%) as enterprise business grew 2.1% QoQ while communications declined by 2% (0.5% impact of seasonality). Operating profit margin stood at 8.5% (our estimate: 8.2%), up 110 basis points QoQ.

Management stated that demand environment remains unchanged and is now prioritising margins over growth. However, the target of achieving 15% margin by FY27E appears challenging, due to near-term uncertainty in telecom spending.

We tweak our FY25/FY26E earnings per share estimate (+0.3%/+0.3%) given inline results and no change in commentary wrt telecom spending.

In view of the tall ask amidst uncertain macro, we believe that risk to estimates is high and thus current rich valuations of 26 times appear expensive. Maintain ‘Sell' rating with target price of Rs 1,300 at 22 times FY26E earnings.

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