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Buy Tech Mahindra; target of Rs 900: Motilal Oswal


We hosted Manoj Bhat, CFO of Tech Mahindra, in Mumbai where he shed some light on the industry environment and TECHM’s outlook and strategic approach. Key highlights: Telecom is back on the growth trajectory due to multiple broad- based services deals. Action on the 5G rollout front – not as significant currently – is expected to accelerate CY20 onwards; lest there is positive disruption driven by some Service providers. Enterprise had a muted exit due to a couple of Healthcare deals spilling over into 1HFY20. This, combined with some near-term slowdown in Automotives (on weak macros) poses a challenge to mathematically achieving industry growth. Funnel of deals remain strong and conversions in 1HFY20 should improve the outlook. BPS has strong profitability and disproportionate growth is not a drag on margins. In recent quarters, even growth has turned around, and should remain high in FY20 as well. Margins are expected to remain at similar levels; operational efficiency and subsidiary profitability will help offset headwinds from wage hikes.