BNP Paribas Securities has a neutral call on Tech Mahindra with a target price of Rs 1485, which is lower than the current market price of Rs 1654.75. The company is a Large Cap IT software firm with a market capitalization of Rs 162738.66 crore. In the latest quarter, Tech Mahindra reported a consolidated total income of Rs 13834.72 crore, a 5.21% increase from the previous quarter and a 5.38% increase from the same quarter last year. The company’s net profit after tax was Rs 1256.88 crore.
The brokerage firm notes that investors are hopeful that Tech Mahindra will see a turnaround under its new CEO, who has reorganized the company to bring agility, service line innovation, delivery quality, and better economics. The CEO’s target is to push Tech Mahindra’s revenue growth above the peer average and EBIT margin to 15%. However, BNP Paribas is concerned about the execution risk to the company’s growth turnaround, especially in the absence of strong deal-win momentum.
The brokerage firm values Tech Mahindra using a discounted cash flow (DCF) methodology, with a revenue growth rate of 10.5%, a weighted average cost of capital (WACC) of 11.5%, and a terminal growth rate of 5%. The main upside risks to the target price are a swift recovery in the company’s CME vertical performance, improvement in deal wins, and a sharp increase in EBIT margin. The main downside risks are continued project stoppages and techspend cuts by customers, a sharper-than-expected decline in global economic activity, margin pressure from increased competition, and sustained Indian rupee appreciation against the US dollar.
As of September 30, 2024, promoters held a 35.03% stake in the company, while foreign institutional investors (FIIs) owned 23.66%, and domestic institutional investors (DIIs) owned 30.83%.