Tech Mahindra Ltd
(BSE Code: 532755) (CMP: Rs.427.95) (FV: Rs.5) (TGT: Rs.500+)
Tech Mahindra Ltd (TECHM) is engaged in the business of computer programming, consultancy and related services. Its segments include Information Technology (IT) Services and Business Processing Outsourcing (BPO). It operates in various sectors including the telecom and enterprise solutions businesses. Its telecom business provides consulting-led integrated portfolio services to customers, who are telecom equipment manufacturers, telecom service providers and into IT infrastructure services; BPO; enterprise services (banking, financial services and insurance (BFSI); retail and logistics; and manufacturing among others of IT and IT-enabled services delivered through a network of various locations around the world. Its enterprise solutions business provides IT services including IT-enabled services, application development and maintenance, consulting and enterprise business solutions, extended engineering solutions and infrastructure management services. TECHM maintained its revenue guidance of 2-5% for telecom with stability returning in the LCC (Lightbridge Communications Corporation) business as well. While the management seemed confident, we believe that telecom revenue growth would gather pace led by capex by large telcos towards 5G and SDN/NFV (software defined networks/network function virtualisation). The management expects 8-10% growth from its enterprise business. The merger of MSAT with TECHM has created a formidable player making it the fifth-largest player in the Indian IT services sector (ex-Cognizant). This will enable TECHM to compete with the biggies of the industry and vie for larger deals, which could lead to improved traction for the merged entity. Generally, clients are more comfortable with larger organizations having a good track record. The close relationship between TECHM and MSAT since the past three years has led to better integration of functions and both the entities function as a cohesive unit now. We believe our revenue EPS CAGR of 9.4%/10.6% over FY17-19E is achievable and TECHM could spring a positive surprise. We believe that the management’s strong focus on margin improvement is a step in the right direction and will boost the confidence of investors to a large extent. Hence, we have a Buy on the stock with a price target of Rs.500.
Technical Outlook: The stock looks very good on the daily chart for medium-term investment. It has formed a cup & handle pattern on the daily chart and is facing strong resistance of its 200 DMA at Rs.444. Start accumulating at this level of Rs.427.95 and on dips to Rs.402 for medium-to-long-term investment and a possible price target of Rs.500+ in the next 6 months.