Buy Tech Mahindra; target of Rs 1170: Angel Broking

Angel Broking`s research report on Tech Mahindra

"For 4QFY2013, Tech Mahindra reported better than expected revenue growth but disappointed slightly on the operational margin front. On organic basis, volumes grew by 3 percent qoq and dollar revenues grew by 1.5 percent qoq despite sharp decline in revenues from BT (down 7.6 percent qoq) which is reasonably good in our view. The company announced five deal wins during 4QFY2013 and continues to chase 5-6 large deals in the pipeline. The ramp-up on the recently won deals will lend visibility to revenue growth and is expected to offset the decline in revenues from BT. We maintain our Buy rating on the stock."

“For 4QFY2013, Tech Mahindra reported USD revenue of US$353mn, up 7.2 percent qoq, aided by acquisition of HGS and Comviva. Incremental revenue came largely from acquisitions of HGS and Comviva, contributing US$64mn. The EBITDA margin declined by 108bp qoq to 19.9 percent, majorly because of higher revenue contribution from the margin dilutive acquired entity and sustained spends in S&M efforts. The consolidated reported PAT came in at Rs377cr while adjusted PAT (adjusting for exceptional item in Mahindra Satyam) came in at Rs320cr, down 20 percent qoq.”

“The Management indicated that the company remains confident of growth from the non-BT business with it continuing to see a healthy deal pipeline across geographies. Tech Mahindra’s managed services focus has helped the company close a large number of deals through FY2013, which will start ramping up from 1QFY2014 onwards and lend visibility to better growth in FY2014. We believe the increased traction in non-BT accounts and consolidation of HGS (US$170mn annual revenue run rate) and Comviva (~US$70mn annual revenue run rate) will offset the decline in BT and will drive growth going forward.”

“We expect a CAGR of 11.0 percent and 10.5 percent in USD and INR revenue over FY2013- 15E. PAT of Tech Mahindra and Satyam for FY2015 are expected to be at Rs994cr and Rs1,342cr respectively. Taking the new share count of 23.08cr shares (post merger of Tech Mahindra and Mahindra Satyam) into account, the consolidated EPS comes in at Rs101.3. We value Tech Mahindra at 11.5x FY2015E EPS and maintain Buy rating on the stock with a target price of Rs1,170,” says Angel Broking research report.   

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