Tech Mahindra is very different from their peers in terms of their revenue model. Their business is heavily concentrated in telecommunication sector which has seen a slowdown in spending in western market, (mainly in the US which has been most impacted). But the same cyclicality and concentration creates tremendous opportunity for the stock as what goes down must come up. So when spending in their main customer segment picks up, the recovery in stock prices could be swift.
In terms of valuations, it’s still the most undervalued stock among its peers with market cap at twice the sale (as opposed to 3-4x for the peers). P/E looks high because of drop in profits. Once they go back to the lower end of their historical average operating margins (18-20%), P/E should drop to 18-20 levels even on a modest top line growth.
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