Low valuations don't make TechM a cool bet; investors advised caution

Telecom segment growth and margin recovery may not fructify soon

Despite a disappointing March quarter (Q4FY20) performance, Tech Mahindra (TechM) shares are up 5.5 per cent in a week. This may be an attractive valuation of 12 times FY21’s estimated earnings, based on hopes of execution of large deals secured earlier, and the stock’s underperformance in the past year. However, there are downside risks in the telecom segment, which contributes over 40 per cent of TechM’s business.

Many analysts, thus, foresee a 4-9 per cent decline in TechM’s top line (in $ terms) in FY21 (versus a 4.3 per cent rise in FY20). HDFC Securities, which has a ‘buy’ on