Tech Mahindra: 5G uncertainty clouds future prospect

Tech Mahindra: 5G uncertainty clouds future prospect

Shares of IT major Tech Mahindra have cooled off nearly 1% on Wednesday, after hitting a fresh all-time high on Tuesday, as the lack of clarity around the timeline of 5G roll-out remains a key concern.
The Mahindra Group owned software services provider witnessed flurry of activity after the management sounded optimistic about the future growth.
In its earnings guidance, Tech Mahindra suggested further improvement in the margin trajectory, steady sales growth led by a robust order book and potential 5G growth opportunities.
On the one hand, the company believes there’s a multi-billion dollar opportunity in 5G network services, which it calls ‘Network Services 3.0’. On the other hand, it also wants to get its hands on the $100 billion in IT services spend, expected to come through large deals, data centre monetisation, and scaling up software-as-a-service (SaaS) platforms.

However, similar to many other industries, 5G has not been immune from the effects of COVID-19. The roll-out of the new network has slipped on the list of priorities for many in the battle against the pandemic.
Even though Tech Mahindra’s focus is squarely on 5G, there is a lack of clarity around the timeline.
While the IT services company will definitely gain if and when 5G emerges full throttle, especially as a partner with the Japanese Rakuten Mobile, it won’t likely be in the current fiscal year.
Tech Mahindra’s margin performance has been volatile over the years, unlike other Tier 1 peers and has remained a key concern for investors.

Meanwhile, Tech Mahindra is engaged in developing new business strategy that will focus on the use of cloud services and platform.
Global spending on cloud services is expected to hit $1 trillion in 2024 spurred by the COVID-19 pandemic, according to the International Data Corporation (IDC).
The strongest growth in the ‘as a service’ category set to account for more to 60% of cloud revenues worldwide.
Within that, Tech Mahindra is targeting the smallest cloud category — infrastructure build. This includes hardware, software, and support for enterprise private clouds and service provider public clouds.
According to the management, there are currently 73 large deals in the pipeline, which shows a 20% growth over the last six months.

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