Brokerage firm Sharekhan has placed a “buy” call on Tech Mahindra with a price target of Rs 910 on the stock, as against its current market price of Rs 793.
"We maintain our Buy rating on Tech Mahindra with a revised target price of Rs. 910, given it is trading at a sharp discount to its large peers. Revenue growth in Q2 would be driven by strong recovery in BPO business, stability around network services revenue and growth in BFSI, healthcare, and technology verticals.
We expect margin improvement going ahead, led by higher offshoring, reduction in subcontractor expenses, improvement in margin profile of two large deals, and better profitability of acquired entities. Tech M is well placed to benefit from the expansion of 5G value chain across networks and IT services, when there is pick up in investments by CSPs and higher 5G adoption by enterprise would happen," Sharekhan has said in its report.
Attractive on favourable risk-reward perspective
Sharekhan has upgraded its earnings estimates for FY2021E because of anticipated better than-earlier margin expansion in Q2FY2020 due to continued lower travel and admin expenses, while broadly maintaining the earnings estimates for FY2022E and FY2023E.
"Tech Mahindra is well placed to benefit from the expansion of 5G value chain across networks and IT services, when pick up in investments by CSPs and higher 5G adoption by enterprise would happen. At the current market price, the stock is trading at a reasonable valuation of 16x/13x its FY2022E/FY2023E earnings at 15-45% discount to its large peers.
Hence we maintain our Buy rating on the stock with a revised price target of Rs. 910," the brokerage firm has stated.