CLSA Maintains Buy on IT company Tech Mahindra with a Target Price of Rs.1300/share. Brokerage firm highlights that Acquisitions have been integral to Tech Mahindra’s business model. CLSA finds company to be among more acquisitive Indian IT companies with Tech Mahindra spending 25% of its Free cash Flow (FCF) over FY13-21 on a total of 26 transactions. The company did 3 acquisitions so far in FY22 itself.

CLSA note says that recent management interactions indicate companies approach to M&A’s has become more structured over past 3 Years. They Sense a greater financial discipline, which lowers risk of an imprudent transaction and should lead to a more predictable capital allocation policy. As per the brokerage firm, the concurrent work on restructuring legacy acquisitions is also complete and they estimate it to provide 70-80bps margin leverage over medium term

And on this evolution of Tech Mahindra’s M&A strategy and its positive Implication expected for its Investors, CLSA is hoping for a 24% upside on the Stock price from its Current Market Price.

But in the near term, one more event to be watchful for is Q1FY22 Earning Update. Tech Mahindra is expected to post its Quarterly Results for the First quarter of FY22 on 29th July’21.

IT stocks have been a laggard after IT Major TCS disappointed with First quarter results. TCS in Q1FY22 results posted a decent set of numbers but they were below the street expectation and due to which stock is down 3.5% in past 5 trading days, creating a pressure on other IT majors as well.