Elara Capital
Tech Mahindra (Buy)
CMP: ₹688
Target: ₹850
After the recent Tech Mahindra analyst meet, we are more enthusiastic about its medium-term growth prospects than near-term ones. 5G testing has started in the US while revenue for the operator is likely to start only in FY21. While near-term growth prospects for the enterprise segment rely on project pipeline revival for HCI (an acquisition in healthcare) and traction in manufacturing (which is seeing a good pick up in spending in the US and Europe), medium-term enterprise growth can be driven by 5G adoption. That could also be when TechM develops differentiation in the enterprise space versus peers.
Near-term growth is likely to be slightly below peers. Management has guided for single-digit growth in the communications vertical, excluding 5G, and 8-9 per cent growth on enterprise-side for FY20. We retain our estimates and reiterate ‘Buy’ with a target price of ₹850 on 14x FY20E P/E.