Systematix Research Report
Tech Mahindra Ltd.’s Q4 FY24 numbers were largely in line with our estimates. New CEO has rolled out revised organization structure in Q4 FY24. New structure (geo based) likely help in participating in large tower deals which wasn’t the case with earlier structure as per management.
This along with prioritising sales investments towards focus markets and verticals will expect to aid growth. The company has given next three-year roadmap i.e FY27 goals wherein-
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The company is looking at topline growth to be more than peer average,
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Aiming for 15% Ebit margins,
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return on capital employed more than 30%,
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more than 85% free cash flow returning to shareholders.
The company mentioned that most of the growth recovery is likely to be organic while the company is yet to decide on any divestment plan on historical acquisitions. Total contract numbers may have increased on sequential basis but continue to remain much lower than guidance given by previous management (of $700-$1 billion).
The company also mentioned that revenue growth turnaround likely requires above than normal investments, and which will likely have an impact of 150 bps and 50 bps on FY25/FY26 margins respectively.
We are now building 2.5% USD CAGR over FY23- 26E (versus 2.2% earlier) factoring some improvement in TCV.
Considering the investments required for growth recovery, we are cutting down our Ebit margin estimates on possible elevated subcon costs and uptick in other expenses.
The company mentioned that in the medium to long term, their aspirational margins are similar to that of top three players in the market.
We maintain the Sell rating and a target price of Rs 1,005, based on 16 times FY26E earnings per share.
Higher-than-expected growth and a substantial pick up in deal wins are key risks to our assumptions.
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Also Read: Tech Mahindra Q4 Results Review – Weak Numbers; FY25 Outlook Remains Muted: Motilal Oswal
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