Tech Mahindra a top pick; target Rs 1026: Dolat Capital
Dolat Capital has maintained Tech Mahindra as a top pick in IT sector with a target price of Rs 1026. According to the research firm, the management is turning incrementally proactive in its efforts to boost up its revenue traction as evident from series of events such as creation of Center of excellence with BMC.
September 05, 2012 / 11:15 IST
Dolat Capital has maintained Tech Mahindra as a top pick in IT sector with a target price of Rs 1026. According to the research firm, the management is turning incrementally proactive in its efforts to boost up its revenue traction as evident from series of events such as creation of Center of excellence with BMC.
“Tech Mahindra has acquired Hutch’s India BPO business (Hutchison Global Services) for USD 87mn in lieu of revenue commitment of about USD 845mn over the next 5 years. HSG is a captive unit and was set up in 2003 and service both voice (Inbound and Outbound) and non voice BPO needs of the company. HSG has a total headcount of about 11,500 based in 5 centres in Mumbai and Pune, servicing about 13mn customers of TSPs (Vodafone and 3) across three markets; UK, Ireland and Australia. If the deal go through then the total BPO headcount for Tech M would go up to about 27000 (30,000+ including Satyam) making it one of the largest third party BPO player.”“The deal would add incremental annual revenue run rate of about USD 170mn a year giving about 15% growth on YoY basis. So it would provide the much needed fillip to its revenues - BT revenue degrowth 4%; Non BT revenues up 20% CAGR over FY10-12. Revenue concentration of BT would also go down below 30% (below 15% for combined entity). However; the deal would be further margin dilutive owing to high voice based BPO component and also on account of incremental interest impact of cash outflow.”“We believe the management is turning incrementally proactive in its efforts to boost up its revenue traction as evident from series of events such as creation of Center of excellence with BMC and this deal, after consolidating its business stream with Satyam over last 3 years. We believe the stock is well poised for a re-rating considering its impending merger synergies and attractive valuations (7x FY14). We maintain Tech Mahindra as our top pick in the sector with a target price of Rs 1026 , valued at 9x of its FY14E earnings,” says Dolat Capital research report.Public holding more than 90% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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