TECHM reported Q3FY23 revenue growth of 0.2% cc QoQ (12.7% cc YoY), tad below IIFLe of 0.8%. Growth moderated across Enterprise (+1.8% QoQ in USD) and Telecom (+1.9% QoQ in USD). Ebit margin stood at 12.0% (+60bps QoQ), in line with IIFLe, as benefit from efficiencies and forex were offset by demand moderation. Net headcount declined by 6.8k sequentially (-4.2% QoQ) in Q3, as management focussed on driving operational efficiencies. Deal wins were healthy at USD795mn (flat TTM YoY) and the pipeline remains healthy. However, decision-making cycles have become longer.
Top 5/Top 10 clients’ revenue growth was soft at -4.6%/-1.4% QoQ, as management highlighted re-prioritisation of spend by certain key clients. Management remains focused on improving margins through CY23 using levers like rationalisation of subcontractors, higher offshoring, shutting on non-strategic lower margin business, automation and optimisation of delivery and portfolio company synergies.
Analysts at IIFL Securities forecast TECHM to deliver USD revenue/EPS Cagr of 8%/14% over FY23-25. They believe risk-reward is balanced on modest growth outlook being priced in valuations given that the stock is trading at 16.3x FY24 P/E, an 18% discount to peers.
Analysts at IIFL Securities maintain Add with target price of Rs 1070.
