RESULTS REVIEW 3QFY20 01 FEB 2020

Tech Mahindra BUY

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Improving business tractionWe maintain BUY on Tech Mahindra based on higher than expected revenue and profits in 3QFY20. Growth visibility has revived for Telecom and Enterprise segment based on strong TCV wins for the second consecutive quarter. We increase earnings est. for FY21/22E by 3.5/4.7% based on better visibility and margin recovery. Our TP stands at Rs 910 based on 15x (~10% premium to 5Y avg.) Dec-21E EPS. HIGHLIGHTS OF THE QUARTER Revenue stood at USD 1,353mn (+5.1% QoQ, +4.3%

CC), which was above our est. of USD 1,323mn. TechM posted the highest CC growth in Tier-1 IT and was led by 8.9/2.4% QoQ growth in Telecom and Enterprise.

Enterprise (57% of rev) was up 2.4% QoQ (on a strong 2Q) due to growth in BFSI (+6.7% QoQ), Retail (+8.1%) and Manufacturing (+1.0%) offset by TME (-1.4%). Healthy Enterprise TCV of USD 1.1bn (highest ever) bolster confidence and was led by USD 0.9bn multi-year multi services Insurance deal.

Telecom growth was higher than expectation due to strong ramp up in AT&T deal. Telecom pipeline remains strong as large services providers are driving efficiencies and modernising their existing networks.

Digital (41% of rev, +40.5% YoY) remains the key strength while legacy was down 7.8% YoY. The acquisition of Cerium Systems is for capability. It has

revenue of USD 15mn (+48% YoY) with 850 employees. The deal was valued at 3.2x and has rev/emp of USD 18K. BPS is growing strongly (+11.8% QoQ) led by Telecom. FCF improved to 118% of PAT.

EBIT margin contracted 58bps QoQ to 12.2% (vs. est. of 12.2%) led by large deal transition cost. Margin Impact of higher SG&A/Sub-con +15.4/+15.2% QoQ was offset by better Utilisation (+200bps QoQ) and currency. Margin in 4Q will be impacted due to transition cost of large BFSI deal. Margin trajectory will improve in FY21E. Attrition dropped to 20% after five quarters.

STANCE: Better outlook, TCV improving Revival in Enterprise coupled with Telecom traction (large deal win and healthy pipeline) is supporting growth. BFSI growth will continue led by strong deal wins, Healthcare and TME will recover gradually. Manufacturing will stabilise led by growth in process industry and Auto sector pain is behind. The synergies between Telecom and Enterprise are now visible and can lead to large multi year transformational deal wins. We expect USD revenue CAGR of 7.9% over FY19-22E led by Telecom/Enterprise CAGR of 8.3/7.7%. TechM trades at a P/E of 14.6x FY21E (in line with Tier-1 median P/E). The risks to our thesis include deterioration in US/Europe macros, Brexit, trade wars and delay in 5G spend.

Financial Summary YE March (Rs bn) 3QFY20 3QFY19 YoY (%) 2QFY20 QoQ (%) FY18 FY19 FY20E FY21E FY22E Net Revenues 96.55 89.44 7.9 90.70 6.4 307.73 347.42 373.53 411.46 455.95 EBIT 11.79 14.39 (18.1) 11.59 1.6 36.25 52.08 46.27 54.77 64.70 APAT 11.22 12.03 (6.7) 9.39 19.5 38.00 42.98 43.70 47.81 55.17 Diluted EPS (Rs) 12.8 13.7 (6.7) 10.7 19.5 43.2 48.9 49.7 54.3 62.7 P/E (x) 18.4 16.3 16.0 14.7 12.7 EV / EBITDA (x) 13.9 9.9 10.3 8.6 7.1 RoE (%) 21.5 22.0 21.1 21.0 21.2

Source: Company, HDFC sec Inst Research # Consolidated, APAT and EPS has been adjusted for tax write back

INDUSTRY IT CMP (as on 31 Jan 2020) Rs 795 Target Price Rs 910 Nifty 11,962 Sensex 40,723 KEY STOCK DATA Bloomberg TECHM IN No. of Shares (mn) 965 MCap (Rs bn) / ($ mn) 768/10,757 6m avg traded value (Rs mn) 1,966 STOCK PERFORMANCE (%) 52 Week high / low Rs 847/607 3M 6M 12M Absolute (%) 7.6 25.0 8.7 Relative (%) 6.2 16.4 (3.6) SHAREHOLDING PATTERN (%) Sep-19 Dec-19 Promoters 35.88 35.87 FIs & Local MFs 13.89 12.78 FPIs 37.63 39.75 Public & Others 12.60 11.60 Pledged Shares 0.00 0.00 Source : BSE

Amit Chandra amit.chandra@hdfcsec.com +91-22-6171-7345 Apurva Prasad apurva.prasad@hdfcsec.com +91-22-6171-7327

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Quarterly Consolidated Financials Snapshot Particulars (Rs mn) 3QFY20 3QFY19 YoY (%) 2QFY20 QoQ (%) Net Revenues (USD mn) 1,353 1,261 7.3 1,287 5.1 Net Revenues 96,546 89,437 7.9 90,699 6.4 Employee expenses 47,905 45,182 6.0 47,057 1.8 Sub-con expenses 15,766 10,900 44.6 13,687 15.2 SG&A and Other Operating Expenses 17,242 16,129 6.9 14,946 15.4 EBITDA 15,633 17,226 (9.2) 15,009 4.2 Depreciation 3,848 2,836 35.7 3,415 12.7 EBIT 11,785 14,390 (18.1) 11,594 1.6 Interest Cost 550 358 53.6 383 43.6 Other Income 3,496 806 333.7 2,163 61.6 PBT 14,731 14,838 (0.7) 13,374 10.1 Tax 3,865 2,638 46.5 4,113 (6.0) Minority Interest and associate profits -357 171 (308.8) -130 174.6 RPAT 11,459 12,029 (4.7) 11,239 2.0 E/o (adj for tax) 236 0 NM 1,848 NM APAT 11,223 12,029 (6.7) 9,391 19.5 Source: Company, HDFC sec Inst Research Margin Analysis MARGIN ANALYSIS 3QFY20 3QFY19 YoY (bps) 2QFY20 QoQ (bps) Employee Cost % Net Revenues 65.9 62.7 324 67.0 -102 SG&A and Other Expenses % Net Revenues 17.9 18.0 -18 16.5 138 Gross Margin (%) 34.1 37.3 -324 33.0 102 EBITDA Margin (%) 16.2 19.3 -307 16.5 -36 EBIT Margin (%) 12.2 16.1 -388 12.8 -58 Tax Rate (%) 26.2 17.8 846 30.8 -452 APAT Margin (%) 11.6 13.4 -183 10.4 127 Source: Company, HDFC sec Inst Research

Revenue in INR terms was up +6.4/7.9% QoQ/YoY EBIT margin declined 58bps QoQ to 12.2% in line with our estimate of 12.2%. Surge in SG&A and sub con was related to ramp-up of large telecom deal. Margin impact was offset by higher utilization at 84% and currency benefit (GBP) APAT was Rs 11.22bn up 19.5% QoQ (vs. est. of Rs 9.87bn) led by revenue beat, lower tax rate offset and higher other income (forex gain of Rs 1.43bn vs gain of Rs 0.50bn) Tax excludes write back of Rs 236mn, adjusted for that the tax rate stands at 26.2%. ETR will be in the range of 25-26%

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QoQ USD Revenue Growth Trajectory YoY USD Revenue Growth Trajectory

Source: Company, HDFC sec Inst Research

Source: Company, HDFC sec Inst Research

EBIT Margin Trajectory Telecom Segment QoQ Growth Trajectory

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research `

YoY growth trend is improving and returning to industry growth level Digital revenue stood at 41% of rev (+10.5/40.3% QoQ/YoY) and legacy was up 1.7% after three quarters of sequential decline TCV in 3Q stood at USD 1,230mn vs.USD 1500mn in 2Q Deal pipeline is at all time high across Telecom and Enterprise Telecom has robust deal pipeline (good traction in 5G, network services being sold to Enterprise clients) EBIT margin target of reaching FY19 levels remain, but additional cost related large BFSI deal will impact near term margins Enterprise growth will accelerate, led by large BFSI deal

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TECH MAHINDRA: RESULTS REVIEW 3QFY20

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Vertical Revenue Break-up (% of revenue) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Telecom 42.8 41.6 39.6 41.5 41.1 42.7 42.0 41.1 42.6 Manufacturing 19.1 19.3 20.1 20.1 20.5 20.2 19.4 18.0 17.3 BFSI 13.3 13.0 13.6 13.5 13.4 13.1 12.8 13.0 13.2 Others 11.2 12.6 13.4 11.1 11.3 10.1 11.9 12.8 12.2 Technology, Media & Ent 6.5 7.3 7.2 7.3 7.0 7.5 7.6 8.1 7.6 Retail, Transport & Logistics 7.1 6.2 6.1 6.5 6.7 6.4 6.3 7.0 7.2 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Company, HDFC sec Inst Research Vertical-wise Revenue Growth (QoQ, %) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20

Telecom 0.4 0.0 (6.3) 4.3 2.5 4.4 (3.2) 1.0 8.9 Manufacturing 3.1 4.0 2.5 (0.5) 5.6 (0.9) (5.5) (4.2) 1.0 BFSI (3.3) 0.6 2.9 (1.2) 2.7 (1.7) (3.9) 4.8 6.7 Others 13.7 15.8 4.6 (17.6) 5.4 (10.1) 15.9 11.0 0.2 Technology, Media & Ent 13.0 15.6 (2.9) 0.9 (0.8) 7.7 (0.3) 10.0 (1.4) Retail, Transport & Logistics 1.1 (10.1) (3.2) 6.0 6.7 (4.0) (3.1) 14.7 8.1 Total 2.5 2.9 (1.6) (0.5) 3.5 0.5 (1.6) 3.2 5.2 Source: Company, HDFC sec Inst Research

Telecom (largest vertical) was up 8.9/11.2% QoQ/YoY. AT&T had full quarter contribution and will reach steady state in FY21E Growth in enterprise was led by 6.7/8.1/1.0% QoQ growth in BFSI/Retail/Manufacturing Manufacturing is impacted by slowdown in Auto sector and Chinese EV related projects offset by growth in process industry

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Geographic Revenue Break-up (% of revenue) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Americas 46.9 47.4 48.2 47.0 47.4 46.5 47.6 48.5 48.4 Europe 29.8 29.6 30.0 29.6 28.9 28.6 27.6 26.7 27.0 Rest of the World 23.3 23.0 21.8 23.4 23.7 24.9 24.8 24.8 24.6 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Company, HDFC sec Inst Research Geographic Revenue Growth (QoQ, %) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Americas 6.1 4.0 0.1 (3.0) 4.4 (1.4) 0.7 5.2 4.9 Europe 1.8 2.2 (0.3) (1.8) 1.0 (0.5) (5.0) (0.2) 6.3 Rest of the World (3.3) 1.6 (6.7) 6.8 4.8 5.6 (2.0) 3.2 4.3 Total 2.5 2.9 (1.6) (0.5) 3.5 0.5 (1.6) 3.2 5.1 Source: Company, HDFC sec Inst Research Onsite-Offshore Split (IT Services) (% of revenue) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Onsite 65.8 67.0 66.6 64.5 65.5 65.2 65.3 65.4 65.3 Offshore 34.2 33.0 33.4 35.5 34.5 34.8 34.7 34.6 34.7 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Company, HDFC Sec Inst Research Onsite-Offshore Growth (IT Services) (QoQ, %) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Onsite 4.0 5.5 (2.3) (3.9) 4.4 (0.5) (1.9) 3.2 4.4 Offshore (3.5) (0.0) (0.5) 5.5 (0.1) 0.9 (2.3) 2.8 4.8 Total 1.3 3.6 (1.7) (0.8) 2.8 (0.0) (2.0) 3.1 4.5 Source: Company, HDFC sec Inst Research

Growth was broad based across all major geographies IT services grew 4.5% QoQ led by both onsite and offshore Margin was supported by 460bps margin expansion in BPS business Top 5/Top 10 client revenue grew +8.5/3.4% QoQ

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Headcount, Attrition And Utilisation Data (Nos.) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Total Headcount 115,241 112,807 113,552 118,400 121,842 121,082 125,773 131,522 130,839 Software Employees 73,460 72,437 72,462 72,543 71,785 71,477 74,093 72,597 73,079 BPO Employees 35,496 34,190 34,700 39,407 43,439 43,081 45,000 52,193 51,096 Sales & Support 6,285 6,180 6,390 6,450 6,618 6,524 6,680 6,732 6,664 Net Additions -1,984 -2,434 745 4,848 3,442 -760 4,691 5,749 -683

IT Attrition (%) 17.0 18.0 19.0 20.0 21.0 21.0 21.0 21.0 20.0

Utilisation Including Trainees (%) 83.0 84.0 81.0 81.0 82.0 82.0 80.0 82.0 84.0 Utilisation Excluding Trainees (%) 83.0 84.0 84.0 83.0 83.0 82.0 82.0 83.0 85.0 Source: Company, HDFC sec Inst Research Key Assumptions Particulars FY17 FY18 FY19 FY20E FY21E FY22E Telecom growth (%) (0.9) (0.7) (0.7) 8.3 8.0 8.5 Enterprise growth (%) 17.1 19.0 8.0 5.2 9.3 8.6 Total USD revenue growth (%) 7.8 9.6 4.2 6.5 8.7 8.5 USD/INR rate 67.0 64.5 69.9 70.6 71.5 73.0 EBIT margin (%) 11.0 11.8 15.0 12.4 13.3 14.2 Source: Company, HDFC sec Inst Research

Attrition has come down to 20% vs 21% QoQ and net headcount declined by 683 vs. 10.3K addition in 1H Utilisation ex-trainees was up 200bps QoQ led by near zero bench and high dependence on sub contractors We expect Telecom to recover in FY20E followed by Enterprise in FY21E

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Change in Estimates Particulars Earlier estimates Revised estimates % change FY20E Revenue (USD bn) 5.236 5.292 1.1 Revenue (Rs bn) 369.34 373.53 1.1 EBIT (Rs bn) 46.16 46.27 0.2 EBIT margin (%) 12.5 12.4 (11) bps EPS (Rs) 47.5 49.7 4.6 FY21E Revenue (USD bn) 5.662 5.755 1.6 Revenue (Rs bn) 402.65 411.46 2.2 EBIT (Rs bn) 54.58 54.77 0.3 EBIT margin (%) 13.6 13.3 (25) bps EPS (Rs) 52.5 54.3 3.5 FY22E Revenue (USD bn) 6.151 6.246 1.5 Revenue (Rs bn) 449.06 455.95 1.5 EBIT (Rs bn) 63.29 64.70 2.2 EBIT margin (%) 14.1 14.2 10 bps EPS (Rs) 59.9 62.7 4.7 Source: Company, HDFC sec Inst Research

We increase FY21/22E USD revenue estimate by 1.6/1.5% based on Enterprise growth prospects Margin estimates have been moderated for FY20/21E due to addition transition cost of large deal wins in Enterprise WE increase EPS estimate for FY21/22E by 3.5/4.7% to bake in improved growth visibility and gradual margin expansion

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Peer Set Comparison

Company MCap (Rs bn)

CMP (Rs)

TP (Rs) RECO

EPS (Rs) P/E (x) RoE (%) FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E

TCS 7,801 2,079 2,025 NEU 83.9 86.5 93.6 104.7 24.8 24.0 22.2 19.9 36.1 35.7 37.2 39.7 Infosys 3,294 776 850 BUY 37.1 38.2 43.5 48.1 20.9 20.3 17.8 16.1 24.3 25.4 28.2 28.3 Wipro 1,351 237 235 NEU 15.8 17.4 18.3 20.0 15.0 13.6 12.9 11.8 17.3 17.7 17.3 16.2 HCL Tech 1,604 591 665 BUY 37.3 39.0 41.7 48.2 15.8 15.2 14.2 12.3 26.0 23.2 21.0 20.7 TechM 768 795 910 BUY 48.9 49.7 54.3 62.7 16.3 16.0 14.6 12.7 22.0 21.1 21.0 21.2 Tier-1 IT Median 16.3 16.0 14.6 12.7 24.3 23.2 21.0 21.2

LTI 337 1,940 2,090 BUY 87.1 85.6 101.6 120.7 22.3 22.7 19.1 16.1 34.6 28.0 28.4 28.7 Mphasis 173 927 1,165 BUY 57.6 58.3 65.5 75.0 16.1 15.9 14.1 12.4 20.0 19.7 19.9 20.2 L&T Tech 175 1,679 1,790 BUY 67.8 76.0 86.6 103.7 24.8 22.1 19.4 16.2 32.0 29.4 28.4 28.5 Mindtree 146 888 830 NEU 44.1 38.5 48.0 63.3 20.2 23.0 18.5 14.0 24.9 18.3 22.7 26.0 Hexaware * 109 364 450 BUY 19.6 21.6 24.5 28.3 18.6 16.8 14.8 12.9 26.5 24.7 24.1 24.0 Cyient 55 494 490 NEU 43.6 36.3 40.9 46.0 11.3 13.6 12.1 10.7 19.5 15.3 15.9 16.2 Zensar 39 171 177 NEU 14.2 10.8 12.9 17.1 12.1 15.9 13.3 10.0 17.6 11.9 12.9 15.3 Persistent 54 701 745 BUY 47.8 47.1 50.0 59.6 14.7 14.9 14.0 11.8 15.7 14.4 15.2 16.2 Tata Elxsi 59 949 875 NR 46.6 39.5 50.7 58.9 20.4 24.0 18.7 16.1 34.5 24.3 26.6 26.1 Sonata 35 336 422 BUY 23.7 28.5 31.6 36.3 14.2 11.8 10.6 9.3 35.1 36.1 35.3 35.7 Intellect 22 170 255 BUY 7.7 2.6 7.3 11.2 22.2 66.5 23.3 15.1 11.1 3.3 8.7 12.1 eClerx 23 629 560 NR 61.7 52.0 53.7 57.0 10.2 12.1 11.7 11.0 17.6 14.0 14.7 14.6 Majesco 11 394 655 BUY 18.3 19.9 30.0 36.7 21.5 19.8 13.1 10.7 8.4 7.9 11.0 12.2 HGS 14 675 745 NR 84.6 100.3 110.9 129.5 8.0 6.7 6.1 5.2 8.5 13.1 13.3 13.7 Mastek 11 442 510 BUY 39.9 42.0 46.8 54.7 11.1 10.5 9.4 8.1 15.9 14.2 14.3 15.0 Tier-2 IT Median 16.1 15.9 14.0 11.8 19.5 15.3 15.9 16.2

Source: HDFC sec Inst Research

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Consolidated Income Statement YE March (Rs bn) FY18 FY19 FY20E FY21E FY22E Net Revenues (USD bn) 4.770 4.971 5.292 5.755 6.246 Growth (%) 9.6 4.2 6.5 8.7 8.5 Net Revenues 307.73 347.42 373.53 411.46 455.95 Growth (%) 5.6 12.9 7.5 10.2 10.8 Employee Costs 166.24 175.08 188.17 205.37 224.59 SG&A & Other Expenses 94.39 108.97 124.73 135.78 149.77 EBITDA 47.10 63.37 60.62 70.31 81.59 Depreciation 10.85 11.29 14.35 15.54 16.89 EBIT 36.25 52.08 46.27 54.77 64.70 EBIT (%) 11.8 15.0 12.4 13.3 14.2 EBIT Growth (%) 13.0 43.7 (11.1) 18.4 18.1 Other Income 14.17 5.34 11.73 10.59 10.57 Interest 1.62 1.33 1.94 2.28 2.37 PBT 48.79 56.09 56.06 63.07 72.89 Tax (incl deferred) 10.93 12.54 13.05 16.08 18.59 Minority Interest and associate profit -0.14 0.57 -0.69 -0.82 -0.86 RPAT 38.00 42.98 43.70 47.81 55.17 Extraordinary item 0.00 0.00 0.00 0.00 0.00 APAT 38.00 42.98 43.70 47.81 55.17 APAT Growth (%) 35.1 13.1 1.7 9.4 15.4 EPS 43.2 48.9 49.7 54.3 62.7 EPS Growth (%) 35.1 13.1 1.7 9.4 15.4

Source: Company, HDFC sec Inst Research

Consolidated Balance Sheet YE March (Rs bn) FY18 FY19 FY20E FY21E FY22E SOURCES OF FUNDS Share Capital - Equity 4.42 4.44 4.33 4.33 4.33 Reserves 184.01 198.41 207.31 238.34 274.14 Total Shareholders' Funds 188.43 202.84 211.65 242.68 278.48 Minority Interest 5.09 4.78 4.78 4.78 4.78 Total Debt 17.26 14.05 14.05 14.05 14.05 Net Deferred Taxes -5.77 -6.09 -6.09 -6.09 -6.09 Long Term Provisions & Others 23.98 21.45 22.18 22.97 23.83 TOTAL SOURCES OF FUNDS 228.99 237.03 246.56 278.38 315.04 APPLICATION OF FUNDS Net Block 48.50 42.45 39.30 36.11 32.89 CWIP 2.40 2.76 2.76 2.76 2.76 Goodwill & Other Intangible Assets 30.33 33.01 33.50 34.03 34.62 Investments 0.00 0.00 0.00 0.00 0.00 LT Loans & Advances 17.83 21.44 23.26 25.47 27.89 Total Non Current Assets 99.06 99.66 98.83 98.37 98.16 Inventories 0.66 0.75 0.75 0.75 0.75 Debtors 64.98 69.59 76.75 83.42 92.44 Cash & Equivalents 77.35 97.01 98.47 119.73 144.62 Other Current Assets 50.54 55.83 63.22 73.32 82.66 Total Current Assets 116.18 126.17 140.72 157.49 175.85 Creditors 20.37 24.89 30.00 32.71 35.90 Other Current Liabilities & Provns 49.25 66.46 67.48 71.07 74.86 Total Current Liabilities 69.62 91.35 97.48 103.78 110.76 Net Current Assets 46.56 34.82 43.24 53.71 65.10 Misc Expenses & Others 6.02 5.54 6.03 6.57 7.16 TOTAL APPLICATION OF FUNDS 228.99 237.03 246.56 278.38 315.04

Source: Company, HDFC sec Inst Research

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Consolidated Cash Flow Year ending March (Rs bn) FY18 FY19 FY20E FY21E FY22E Reported PBT 48.79 56.09 56.06 63.07 72.89 Non-operating & EO items (2.63) 3.45 (11.04) (9.77) (9.71) Interest expenses 1.62 1.33 1.94 2.28 2.37 Depreciation 10.85 11.29 14.35 15.54 16.89 Working Capital Change (7.83) (10.57) (10.48) (12.96) (14.13) Tax paid (15.26) (16.61) (13.05) (16.08) (18.59) OPERATING CASH FLOW ( a ) 35.53 44.97 37.77 42.08 49.73 Capex (19.22) (9.14) (11.21) (12.34) (13.68) Free cash flow (FCF) 16.31 35.83 26.57 29.74 36.05 Investments - - - - - Non-operating income 2.63 (3.45) 11.73 10.59 10.57 INVESTING CASH FLOW ( b ) (16.59) (12.59) 0.53 (1.76) (3.11) Debt Issuance 7.49 (4.50) - - - Interest expenses (1.62) (1.33) (1.94) (2.28) (2.37) FCFE 22.17 30.00 24.63 27.46 33.68 Share capital Issuance/Buyback 0.25 0.36 (19.56) - - Dividend (9.44) (14.91) (15.34) (16.78) (19.36) FINANCING CASH FLOW ( c ) (3.33) (20.38) (36.84) (19.06) (21.73) NET CASH FLOW (a+b+c) 15.62 12.00 1.46 21.26 24.89 Non-operating and EO items 5.59 7.66 - - - Closing Cash & Equivalents 77.35 97.01 98.47 119.73 144.62

Source: Company, HDFC sec Inst Research

Key Ratios

FY18 FY19 FY20E FY21E FY22E PROFITABILITY (%) EBIT Margin 11.8 15.0 12.4 13.3 14.2 APAT Margin 12.3 12.5 11.5 11.4 11.9 RoE 21.5 22.0 21.1 21.0 21.2 RoIC or Core RoCE 18.6 28.9 24.0 25.7 28.3 RoCE 14.7 19.1 16.0 16.9 17.6 EFFICIENCY Tax Rate (%) 22.4 22.4 23.3 25.5 25.5 Fixed Asset Turnover (x) 3.0 3.2 3.2 3.2 3.2 Debtors (days) 77 73 75 74 74 Other current assets (days) 60 59 62 65 66 Payables (days) 35 35 35 35 35 Other current liabilities (days) 58 70 66 63 60 Cash Conversion Cycle (days) 44 28 37 42 46 Net Debt/EBITDA (x) (1.3) (1.4) (1.7) (1.8) (1.9) Net Debt/Equity (x) (0.3) (0.4) (0.4) (0.4) (0.4) Interest Coverage (x) 22.3 39.1 23.8 24.0 27.3 PER SHARE DATA EPS (Rs/sh) 43.2 48.9 49.7 54.3 62.7 CEPS (Rs/sh) 56 62 66 72 82 DPS (Rs/sh) 14 14 15 16 19 BV (Rs/sh) 214 231 241 276 317 VALUATION P/E 18.4 16.3 16.0 14.7 12.7 P/BV 3.7 3.5 3.3 2.9 2.5 EV/EBITDA 13.9 9.9 10.3 8.6 7.1 OCF/EV (%) 5.4 7.2 6.1 7.0 8.6 FCF/EV (%) 2.5 5.7 4.3 4.9 6.2 FCFE/mkt cap (%) 3.2 4.3 3.5 3.9 4.8 Dividend Yield (%) 1.8 1.8 1.9 2.0 2.4

Source: Company, HDFC sec Inst Research

TECH MAHINDRA: RESULTS REVIEW 3QFY20

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Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target 9-Jan-19 690 BUY 830 1-Apr-19 776 BUY 858 9-Apr-19 787 BUY 850

22-May-19 773 SELL 652 5-Jul-19 681 SELL 650

31-Jul-19 640 SELL 595 27-Aug-19 691 NEU 620 22-Sep-19 701 NEU 620 4-Oct-19 703 NEU 650 6-Nov-19 773 BUY 850 7-Jan-20 770 BUY 870 1-Feb-20 795 BUY 910

RECOMMENDATION HISTORY

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Tech Mahindra TP

HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel,Mumbai - 400 013 Board : +91-22-6171-7330 www.hdfcsec.com

TECH MAHINDRA: RESULTS REVIEW 3QFY20

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