INSUBCONTINENT EXCLUSIVE:
Jefferies Group has a hold call on Tech Mahindra with a target price of Rs 770.
The current market price of Tech Mahindra is Rs 693.90.
Time
period given by the brokerage is one year when Tech Mahindra price can reach the defined target
View of the foreign brokerage on the company:
3-4-3 strategy remains in focus across verticals: Management reiterated its 3-4-3 strategy,
unveiled last year, which identifies 3 megatrends, 4 big bets and implements through Run-Change-Grow across key verticals viz
Communications, Manufacturing, BFSI and Healthcare Life Sciences.
5G to scale up non-uniformly; significant revenue boost beyond FY20E:
TechM identified 4 key trends regarding 5G: 1> it will be a complete system overhaul, not just a network upgrade with implications for
systems, processes, culture and mindset 2> it will act as a platform for innovation across industry segments 3> implementation will be in
phases and non-uniform across different markets and companies 4> it will lead to a significant shift in spending from hardware to software
While pilots for 5G implementation have started, management expects significant revenue to start flowing in post FY20E - this also reflected
in 5-6 per cent growth target for the communication vertical in FY20E.
Acquisitions to continue: Acquisitions remain a key part of its
strategy, despite issues with some of its past acquisitions and it will continue to invest in new opportunities that align with its growth
objective and where it can derive synergy benefits
However, it refrained from quantifying any inorganic revenue growth contribution.
FY20E growth target in line with estimate; multiple margin
levers: Management indicated that it is targeting 5-6 per cent growth from communications vertical and 8-10 per cent from enterprise in
FY20E, the mid-points of which imply growth largely in line with our estimate of 7.5 per cent (constant currency)
It also indicated multiple margin levers: 1> improvement in business mix with the share of digital expected to rise to 50 per cent over
31 per cent currently 2> synergies from portfolio cos
3> automation 4> new age delivery.
Maintain hold: We maintain our Hold rating on the stock as we believe expected single-digit growth over
FY19-20E justifies current valuation and margin expansion which led to outperformance over the last 12 months has largely played out
5G capex related spend will drive acceleration in growth and is a key catalyst but this is still some time away.
