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Tech Mahindra share hits all-time high, here's what analysts say

The IT company aims to report about 15% EBIT margins in FY22 on the back of accelerating revenue growth, improved performance of acquired entities, and automation-led operating efficiencies, it said during an analyst meeting

Tech Mahindra stock opened with a gain of 2.15% today and later touched a 52-week high of Rs 914.20, rising 4.34% from its previous close of Rs 876.15 Tech Mahindra stock opened with a gain of 2.15% today and later touched a 52-week high of Rs 914.20, rising 4.34% from its previous close of Rs 876.15

Shares of Tech Mahindra traded 4% higher on Tuesday and jumped to an all-time high of Rs 914.20 on BSE, as analysts remained bullish on the software services exporter post its recent analyst meet.

Brokerages remain upbeat on the stock, expecting Tech Mahindra to benefit from 5G and cloud opportunities, and citing better margin trajectory, growth in revenue for the communication vertical. Of the 45 analysts tracking Tech Mahindra, 37 have 'buy' rating, five suggest a 'hold' and the rest recommend a 'sell'.

The IT company aims to report about 15% EBIT margins in FY22 on the back of accelerating revenue growth, improved performance of acquired entities, and automation-led operating efficiencies, it said during an analyst meeting.

Tech Mahindra stock opened with a gain of 2.15% today and later touched a 52-week high of Rs 914.20, rising 4.34% from its previous close of Rs 876.15. The stock also hit a day's low of Rs 872.60.

Shares of the company rose as much as 3.8% to Rs 910 apiece. Market capitalisation of Tech Mahindra stood at Rs 88,009 crore. The stock has risen 6.4% in the last 2 days of straight gains.

Tech Mahindra share is trading higher than 5, 20, 50, 100 and 200-day moving averages. In the last one month, the IT stock has risen 11.83%. It has gained 19% since the beginning of the year.

Motilal Oswal Financial Services has a neutral call on Tech Mahindra with a target price of Rs 940 and said,"TECHM should deliver single-digit growth in FY22 (v/s double-digit growth by its peers), which would lead to a lower P/E multiple. We value the stock at 20x FY22E EPS, at a 25% discount to target P/E for TCS."

Brokerage firm Axis Securities recommended "buy" and assigned 16x P/E multiple to its FY23E earnings of Rs 62.7, giving a target of Rs 975 per share. The brokerage house said that the IT major had posted robust broad-based growth in Q2FY21 and it had a resilient business structure from a long-term perspective.

CLSA maintained "buy" recommendation and hiked the target to Rs 1030 per share from Rs 981 per share. CLSA said it expects single-digit revenue growth in the communications vertical in FY22 ex-5G. The company planned to improve its EBIT margin to 15 percent by FY22 and the reiteration of its intent to increase its capital return was also a positive. The research firm added that the 5G market opportunity appeared closer to realisation.

Kotak Institutional Equities also recommended buy rating and highlighted in its note that, "Tech Mahindra is well-positioned to capitalize on opportunities from cloud adoption by telecom companies. The company has made adequate investments, has defined bets and appears set to capture the opportunity arising from 5G adoption of telcos and enterprise clients. Tech Mahindra is on the path to developing a full set of capabilities to capture a larger share of spending in clients."

Brokerage firm ICICI Securities said it remains positive on the company and added, "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 per cent revenues) and higher double-digit in the enterprise segment (60 per cent of revenues) in FY22. In terms of margins, the company expects to reach 15 per cent by FY22E led by higher offshoring, lower subcontracting cost, reducing focus on low margin geographies, services & customers and pyramid rationalization."

Meanwhile, Morgan Stanley retained overweight with a target of Rs 980 per share on the stock.

On October 23, Tech Mahindra reported a 9.5% rise in its profit at Rs 1,064.6 crore in the quarter ended September 2020, while its revenue from operations increased by 2.9% to Rs 9,371.8 crore from Rs 9,106.3 crore in the previous quarter.

"For the quarter under review, consolidated sales stood at Rs 9371.80 crore,  up 3.33 % from sales of Rs 9069.90 crore, registered in the last year same quarter," Tech Mahindra said in its BSE filing.

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