ICICIdirect has selected Tech Mahindra as techno-funda pick. It has recommended 'Buy' in the range of Rs 2,870-2,930 for target of Rs 3,490 with stop loss of Rs 2,695, for duration of 6 months. The broking house gave the following technical and fundamental outlook:
Technical Outlook:
The stock remains in a well channelled up trend and is seen resuming its next up leg after a month long breather offering a fresh entry opportunity to medium-term players.
The corrective dip off the life-time high of Rs 2,995 was anchored at the key support marked near Rs 2,740 and resulted in a bullish double bottom formation reiterating consistent buying support near the value area.
The robust price structure in the existing up trend is clearly visible in the fact that rallies are faster while declines have been time consuming and highlighting the corrective nature of the same. This price/time behaviour corroborates the bullish view in the stock.
We believe the stock has concluded a healthy corrective decline and offers a favourable reward/risk set-up to ride the next up move. We expect the stock to head towards Rs 3,500 being the 150.8% extension of the preceding up move from Rs 2,460 to Rs 2,995 as projected from the recent trough of Rs 2,740.
Fundamental Outlook
TechM reported robust 4.9% constant currency (CC) growth in Q3 led by manufacturing, Europe and offset by softness in telecom and de-growth in top 5 customers. Total 3.7% constant currency (CC) growth excluding MES contribution (USD 10 million, 1.2%) was also healthy in a seasonally soft quarter. Generally, management commentary suggests the demand environment across geographies & verticals, and deal pipeline continues to be encouraging. TechM signed deals worth USD 1.9 billion in TCV in the past seven quarters as it continues to see good traction in the network services segment and is getting invited to larger deals, than earlier, on the enterprise side.
We expect TechM to report rupee revenue, PAT CAGR of 20%, 13% in FY14-17E (average 19.3% EBITDA margins in FY15-17E), vs. 13%, 19% reported in FY08-13 (average 21.9%), respectively, driven by traction in enterprise and communications business, healthy order pipeline and large deal ramp-ups.
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