With a target price of Rs 1,670 per share, CLSA has reduced Tech Mahindra to a "Hold" rating. The downgrading was based on stretched valuations and the company's recent strong surge.
"Though contract wins are still strong, the forecast for global telecom capital expenditure (capex) is still poor. However, a lack of compelling use cases is projected to delay the commercialization of enterprise 5G, according to the global brokerage.
There might be a number of short-term difficulties for Tech Mahindra, especially in its telecom sector. The brokerage said that Tech Mahindra has not disclosed any notable cost-optimization transactions, in contrast to major competitors TCS, Infosys, and Wipro.
Within CLSA's coverage universe, analysts anticipate mid-to high-single-digit growth for the telecom sectors.
Global telecom businesses mostly stuck to their CY24E expenditure projection in June 2024, according to CLSA, and there has historically been a strong relationship between the capex of these companies and the revenue growth of Indian IT companies' telecom verticals.
Since Tech Mahindra was CLSA's top choice and an anti-consensus call since January of this year, the company's shares plummeted by about a percent. The downgrading occurs at the same time as the stock of the IT giant has increased by 25% so far in 2024, outpacing the 16% increase in Nifty IT over the same period.
Mahindra University will purchase the land and buildings from Tech Mahindra. The total built-up area of the properties is about 1.26 million square feet, distributed over 17 buildings. The property is located in Hyderabad's Bahadurpally village.
The land parcel deal is valued at Rs 535 crore, in addition to taxes, stamp duty, registration fees, conversion costs, and other relevant expenses. The money will be received over the course of four years in installments, plus interest at the rate of 8.2 percent annually, which will be remitted during that time.
Establishing Mahindra University as an "autonomous institution that focuses on the betterment of society, one which can continue to grow independently" is the stated goal of the transaction, according an exchange filing.
