Tech Mahindra analysts’ meeting was held last week to discuss its strategy. The management outlined the company’s focus areas: (i) maintaining the growth momentum by focussing on large deals and areas where clients are spending; (ii) focusing on productivity improvement and efficiency leading to margin improvement on a sustained basis; (iii) increasing focus on product and platform (P&P) business and nex-gen technology big bets to drive revenue growth; (iv) value creation through M&As, synergy from portfolio companies, and joint ventures; and (v) ongoing drive on performance-led culture along with talent development, engagements and new inductions.
FY24 investments’ focus to be around P&P and co-investments with customers: TechM focussed on competency building (through both organic and inorganic initiatives) and spends on new-age technologies and transformation initiatives during FY22 and FY23. In FY24, the company intends to increase its investments in the P&P business and co-investments with customers and partners, both organically and inorganically. TechM intends to more than double its P&P business from $450mn/ year revenues to at least $1bn over next three years driven by a focus on cross-selling these offerings to existing and new customers. In cocreation, TechM intends to address important industry problems and track emerging trends in a more diversified manufacturing base. It also intends to increase its revenue from alliances and partnerships.
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Strategy to remain focussed on customers even under new leadership TechM clarified that while its search for a new CEO continues, the strategy in the future would also remain centered around the customers which include P&P and co-investments. Current CEO, CP Gurnani, also indicated that there would be an overlap between the new CEO and him (his term expires in Dec-23) to ensure a smooth transition.
Maintain Buy and TP of Rs 1,260; valuation remains attractive We maintain our Buy rating and TP of Rs 1,260, set at an unchanged 16x FY25F EPS of Rs 79. Our target multiple is based on a three-staged growth model discussed in our sector report. The stock is currently trading at 14x FY25F EPS. Key risks: weak revenue growth and continued margin pressure due to supply side challenges.