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Tech Mahindra

- Financial Analysis to determine investment decision


- By Group C10
About Tech Mahindra Limited
121840+ employees, Mcap Full(cr): 71,310.53(BSE)
India’s top 5 IT company based on revenue generation.
• Leveraging off-siting and digital along with efficiently managing employees
• Adoption of fast paced technology advancements for Gen-Y products & services
Promoters Shareholding pattern

Source: (2019). Retrieved from IIFL: https://www.indiainfoline.com/company/tech-mahindra-ltd/share-holding/17215


(2019). Retrieved from BSE: https://www.bseindia.com/stock-share-price/tech-mahindra-ltd/techm/532755/
Stock Market Analysis

• Current Stock Price: 739.85

• % Avg growth rate in 1 year: 8.05%

• % Avg growth rate in 5 years: 47.42%

Source: (2019, June). Retrieved from Economic Times: https://economictimes.indiatimes.com/tech-mahindra-


ltd/stocks/companyid-11221.cms
Financial Analysis: I
2017 2018 2019 Inference

Revenue (INR 291408 307729 347421 Increased


Millions) by 16.1%

Financial Ratios
Cash Ratio 0.71 0.7 0.87 Improved

Current Ratio 2.42 2.25 1.48 Decreased


Liquidity
Quick Ratio 2.41 2.2 1.46 Decreased

Debt Equity Ratio 8.08 12.38 6.77 Decreased

Activity Total Asset Turnover Ratio (%) 97.6 88.29 89.71 Decreased

Source: (2019). Retrieved from Money Control: https://www.moneycontrol.com/financials/techmahindra/balance-sheetVI/TM4#TM4


Financial Analysis: II
2017 2018 2019 Inference

Profitability Gross Profit Margin (%) 13.16 13.72 16.57 Increased

Operating Profit Margin (%) 15.85 16.49 18.98 Increased

Net Profit Margin (%) 13.15 16.9 16.09 Increased

Cash EPS (Rs.) 37.69 47.53 51.24 Increased

Return on Assets (RoA, %) 12.84 14.92 14.43 Stable

Return on Capital Inv. (%) 14.5 13.5 17.9 Increased

Return on Equity (RoE, %) 18.04 20.46 21.21 Increased

EBIDTA Margin (%) 14.36 15.3 18.24 Increased

Source: (2019). Retrieved from Money Control: https://www.moneycontrol.com/financials/techmahindra/balance-sheetVI/TM4#TM4


Competitor Analysis
Mean
(Competitor Tech Mahindra
TCS Infosys Ltd Cognizant Wipro Ltd HCL
s Including Ltd
TECH M)

Mkt Cap 1,625,454,443, 8,442,302,730, 3,274,900,156, 2,552,847,370, 1,725,207,534, 1,459,695,131,


728,805,430,807
(INR) 243 794 889 459 514 685

P/E 17.79 13.65 23.87 18.94 15.81 16.77 13.31


EV/EBITDA 12.21 9.37 17.92 13.14 10.13 11.18 8.51
EV/EBIT 13.65 11.24 18.88 14.50 11.38 13.30 10.30
BF EV/Rev 2.47 1.72 4.84 3.24 2.02 2.30 1.95

Source: Bloomberg L.P. (2019) Financial Analysis for Tech Mahindra India. 03/31/10 to 03/31/19. Retrieved June
22, 2019 from Bloomberg terminal
Industry trends
• Digital component in the Indian IT sector should gradually pick-up from current 6-7%,
providing a scope of expansion in future. Manufacturing vertical is seeing increased
adoption of Digital technologies. Clients are looking to build IoT based smart solutions,
factories of the future and there is increased focus on manufacturing analytics. This
further suggest industry expansion.
• TechM’s CAGR over the next three years is expected to be 11.5% for which is slightly
higher than industry, driven by revenue CAGR of 10.5% as per Motilal Oswal’s
valuation on January 2018.
• Attrition increased to 18% due to no wage hikes for mid level managers and utilisation
including trainee expanded to 84%. This is higher than industry standards.

Source: (2018, January 29). Retrieved from Marketsmojo: https://i.marketsmojo.com/pdf/research-


report/201801/Tech_Mah_MOSL_30118.pdf
Recommendation
• The analysis shows that Tech Mahindra has been consistently improving in its
profitability and revenue parameters.

• However, the company has decreasing liquidity margins.

• The compete analysis shows that TechM is not performing up to the mark in
terms of P/E ratio, however the company is undervalued as compared to the
competes.
Considering improvement in major financial parameters and general potential
of growth in the sector, we propose to invest in Tech Mahindra.
Thank you