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Tech Mahindra Shares Hit 52-Week High On Rating Upgrade

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Shares of Tech Mahindra rose as much as 3.7% on Tuesday to hit a new 52-week high of Rs 910 on NSE after brokerage turned bullish on the stock on expectations of growth driven by large deal pipeline and 5G opportunities.

 

In a virtual analyst meet, Tech Mahindra highlighted that it is expecting an acceleration in growth based on large deal pipeline (73 large deal potential), healthy pipeline (20% pipeline growth in 6 months), acceleration in digital technologies and 5G opportunities.

Tech Mahindra Shares Hit 52-Week High On Rating Upgrade

The management believes there is a large multi-billion dollar opportunity in 5G network services (christened Network Services 3.0) and expects the segment to grow at a faster pace than the overall Communications vertical.

CLSA maintained a "buy" call on the stock and raised the target price to Rs 1,030 per share from Rs 981 earlier. The brokerage sees single-digit revenue growth in communications vertical in FY22 excluding 5G.

Axis Securities also has a "buy" rating on the stock saying that Tech Mahindra posted robust broad-based growth in the September-ended quarter and that it had a resilient business structure from a long-term perspective.

 

The brokerage assigned 16x P/E multiple to its FY23E earnings of Rs 62.7, giving a target of Rs 975 per share.

ICICI Securities in a note spoke of Tech Mahindra becoming a key beneficiary of 5G opportunities.

"The company is also aiming to reduce revenue volatility by focusing on more annuity type deals. The company expects lower than double digit growth in telecom (around 40% revenues) and higher double digit in enterprise segment (60% of revenues) in FY22. In terms of margins, the company expects to reach 15% by FY22E led by higher offshoring, lower subcontracting cost, reducing focus on low margin geographies, services & customers and pyramid rationalization," it said.

On the other hand, Motilal Oswal Financial Services has a "neutral" call on Tech Mahindra with a target price of Rs 940 per share.

"We see the need to invest back into the business as the key limitation to its aim of margin improvement," it said.

The brokerage said that Tech Mahindra should deliver single-digit growth in FY22 (v/s double-digit growth by its peers), which would lead to a lower P/E multiple. The brokerage values the stock at 20x FY22E EPS, at a 25% discount to target P/E for TCS.

Read more about: tech mahindra 5g
Story first published: Tuesday, December 1, 2020, 12:34 [IST]
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