Nov 22, 2012, 06.51 PM | Source: Moneycontrol.com
Emkay Global Financial Services is bullish on Tech Mahindra and has recommended accumulate rating on the stock with a target of Rs 1050 in its November 21, 2012 research report.
, Emkay Global Financial Services |
“Tech Mahindra, after a 2.3x jump in US$ revenues through FY06-08, TechM’s revenues grew by an anemic 5.5% CAGR through FY08-12 impacted adversely by pressures at BT (note that revenues from BT have declined from ~US$ 600 mn in FY08 to ~US$ 431 mn and contribution of business from BT declining from ~64% of revenues to ~37% in FY12). It is worth highlighting that TechM’s non BT revenues grew by an impressive 21% CAGR over FY08-12. We see improvement in revenue growth profile ahead for TechM ahead aided both by recent inorganic moves (TechM’s acquisition of HGS as well as Comviva) as well new deal wins. Apart from winning a large engagement with KPN (potential TCV of ~Euro 500 mn over 5 yrs), co has won a deal with TCV of ~US$ 70-80 mn from an exiting UK client which should bolster revenue growth prospects ahead. We thereby build in a13% revenue CAGR over FY12-14(recently made acquisitions contribute ~ US$ 100 mn in incremental revenues for FY14).”
“TechM/Mah Satyam management has done well to improve margins for Mah Satyam with margins improving by ~1550 bps over the past 8 qtrs aided by revenue growth, increased offshore proportion of revenues and broadening of employee pyramid. While bulk of the margin improvement is largely behind, we see scale and growth benefits along with reduction in legal costs as margin tailwinds ahead which should help protect margins at current levels on a constant currency basis. Further MSat’s strengths in manufacturing and EAS should continue to drive client mining ahead (top 5/10 clients have grown by 4.9%/4.5% over the past 6 quarters V/s a 2.5% CQGR at the co wide level for the company).”
“Despite a 45%+ upmove in the past 6/12 months, valuations at ~9.5x/9x FY13/14 proforma earnings for the combine remain attractive ( and at ~25% discount to nearest peer HCL Tech) given ‘upside risks to earnings estimates’. We note that our FY13/14E pro forma earnings are ~8/6% higher than consensus. Retain ACCUMULATE on TechM/Mah Satyam with TP of Rs 1,050/125(based on merger swap ratio of 1:8.5),” says Emkay Global Financial Services research report.
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