Worst Over For Tech Mahindra, Brokerages Say

Brokerages expect Tech Mahindra Ltd. to report high single-digit revenue growth in the the financial year 2018-19.

“The worst may be behind” the IT major as synergistic deals provided its mergers and acquisition strategy some comfort, Credit Suisse said in a note after attending an analyst meeting hosted by the company at its Pune facility.

The outlook is incrementally improving and the portfolio challenges in telecom appear to be a thing of the past, Morgan Stanley said in its report. “We have assumed growth improves to 7 percent year-on-year in FY19, but based on the positive commentary, there could be upside risk to our estimates.”

Here are the key takeaways from brokerages which attended the analyst meet.

Credit Suisse

• Synergies coming through in some of the recent acquisitions.
• Key margin levers are continued focus on co-innovation with clients, recovery in IT margins of merged entities like Lightbridge Communications Corporation and Comviva and Complex.
• Earnings before interest and tax to grow at compounded rate of 18 percent over the next three years.
• Going ahead, the IT major will be focusing on smaller mergers and acquisitions to add new capabilities.
• The brokerage reiterated its ‘outperform'’on the stock with a price target of Rs 550, implying a potential upside of nearly 10 percent.

Axis Capital

• Tech Mahindra’s continued focus and improvement in telecom has led to the company partnering with all major communications service providers.
• Revenue trajectory to witness slow and steady recovery with nearly 8 percent revenue growth expected over the next three years in compounded annual growth rate terms.
• Earnings to grow at a compounded rate of 11 percent in the next three years.
• The brokerage reiterated its ‘buy’ on the stock with a price target of Rs 496, reflecting a potential upside of nearly 22 percent.

Morgan Stanley

• Expects a top line growth of nearly 7 percent, with upside risks given the management's positive commentary.
• Organic revenue to grow to 10-11 percent in the next year, with better margins and flat growth in earnings per share.
• If growth and margins surprise positively, earnings per share could grow to 6-7 percent in the next two years, and the stock could gain up to 14 percent if price to earnings valuations are better.
• The brokerage reiterated its ‘outperform’ on the stock with a price target of Rs 500.