Update on the Indian Equity Market:
On Tuesday, the benchmark index NIFTY 50 closed at 17,233 (+0.9%), 147 points higher. Among the sectoral indices, CONSUMER DURABLES (+1.4%), AUTO (+1.3%), and PSU BANK (+1%) led the gainers and there were no losers today. Among the NIFTY50 components, SUNPHARMA (+3.1%), ASIANPAINT (+2.8%), and M&M (+2.6%) were the top gainers while POWERGRID (-0.34%) and INDUSINDBK (-0.27%) led the laggards.
Excerpts of an interview with Tech Mahindra’s CEO and Managing Director CP Gurnani with Business Standard on 25th December 2021:
- 50% of revenues for TECHM come from telecom service providers and the telecom ecosystem. The 3 factors that would really help telecom grow are; the first one being network up-gradation to 5G, second- newer platforms that will drive consumption of telecom and the third one which is the most dominant according to Mr. Gurnani is that the more work from home happens the more everyone would appreciate the importance of network service providers.
- TECHM has not abandoned the ORAN (Open Radio Access Network), it is just that the number of players in this space has increased. Other than Rakuten, Microsoft, VMware, and Mavenir have come up with their own ORAN ecosystems. TECHM is definitely committed but to remain neutral, it was important for them to not be seen as execution partner to one. So, their strategy is to not be a product company but execute with some of the leading players.
- There is a new way of managing networks which has become a theme for telcos. All the players in the telecom sector are trying to find viable alternate proofs of concept at a certain scale and volume and Mr. Gurnani believes that they are execution partner to every player including Airtel and Jio.
- Talent is an industry-wide issue at this point as consumption from IT service providers, global technology and start-ups have increased. There is definitely a talent war going on.
- TECHM anticipated the talent issue and opened offices in Tier 2 cities in Coimbatore, Vizag, Thiruvananthapuram, Indore, Nagpur, Calcutta, and Bhuvneshwar. So, the focus is on people’s preferences to work from their home locations.
- TECHM has now opened offices in Vietnam, Bangladesh, and in the Eastern European block. As a strategy they are trying to catch young talent, train them and participate in their career development.
- Work from the office is voluntary at Tech M till December-end due to safety reasons. A survey of TECHM’s employees showed that those below the age of 35 want to come to the office, 35-50 age group is leaning towards a hybrid model and 50 and above prefer working from home. TECHM’s work policy will be formed taking into account their client and employee needs.
- TECHM will continue to try and be among the top 3 IT services companies in India.
Asset Multiplier Comments
- We think Healthy deal wins, traction in the communication segment led by legacy modernization, 5G, customer care, automation, network, and cloud will help drive revenues.
- Higher offshoring, synergies in portfolio companies, automation & operating leverage to help margin expansion going forward.
Consensus Estimate: (Source: market screener and Tikr website)
- The closing price of Tech Mahindra was ₹ 1,806/- as of 28-December-2021. It traded at 28x/25x/22x the EPS estimates of ₹ 64/73/81/- for FY22E/FY23E/FY24E respectively.
- The consensus target price of ₹ 1,794/- implies a P/E Multiple of 22 on FY24 EPS estimate of ₹ 81/-
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