Buy Tech Mahindra, target of Rs 950: Karvy

Karvy Stock Broking has upgraded its rating on Tech Mahindra to buy from outperformer with a target price of Rs 950 in its July 25, 2008 research report. "Tech Mahindra for Q1FY09 reported a 9.3% sequential growth (to Rs 11.1 billion), which was little higher than what we estimated, as we expected the revenues from onsite and from the US geography to be sluggish. On the contrary, both its onsite and offshore revenues grew by 4% and 13% over the previous quarter."

"The earnings growth for the next two years would be little 25% and if it all there are any royalty payments it would be the line. In the past two years the company after winning large deals made payment to BT, which is treated below the line. We see little risk to our forecast and at the current price the stock is trading at 9.1xFY09E and 7.2xFY10E and it has one of the highest return on capital employed ratios. Since the growth is under no threat and the valuations are very attractive, we upgrade our recommendation on the stock to BUY from out performer rating, with a price target of Rs 950," says Karvy's research report.

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