Buy Tech Mahindra; target of Rs 910: Dolat Capital

Dolat Capital is bullish on Tech Mahindra and has recommended buy rating on the stock with a target of Rs 910 in its August 9, 2012 research report.

“Tech Mahindra’s Q1FY13 revenue stood at USD 281mn, flat QoQ (constant currency term USD 284mn). In reported currency terms company revenues grew by 8.8% QoQ at Rs 15.4bn slightly ahead of our estimates of Rs 14.8bn. PAT before exceptional and associate grew by 32% at Rs 1.8bn inline with our estimate of Rs 1.78bn. Non-BT revenues grew by 1.4% QoQ to USD 180mn sustaining the momentum. However; the growth in the non BT was also largely driven by Top 2-5 client bucket (8.6% QoQ growth) as rest all categories saw a QoQ degrowth. BT revenues declined to GBP 65mn as IT spends rationalization continue to impact TechM despite its wallet share expansion in the account.”
“Tech Mahindra has been successful in acquiring new deals quarter after quarter (tough small in size) despite challenged environment. It bagged 4 key deals (one deal over USD 50mn over 3yrs) in the quarter across geographies. Its active client count remains intact at 130 just net ads of 6 clients over last 8 quarters. Management is on track on merger with its integration efforts on across its operational activities and now just awaits approval from court of Maharashtra and AP. During the quarter the company got approval from Competition Commission of India (CCI) and shareholders in the court convened meeting held in June.The business outlook continues to remain challenging in Telecom vertical but sustained performance in the non BT business covers up for stagnant BT business. We remain positive on the stock in view of attractive valuations and integration gains from Satyam despite moderate financial performance.”
“The results (ex-Satyam) were in line with our estimates, however; the muted outlook in the management’s commentary indicates slower recovery in business ramp-up in the Telecom vertical. However, the compelling valuation (7x FY14E EPS) and declining share of BT (just 36%) is providing the much needed solace. We largely maintain our Sales/PAT estimates for FY13/14 for Standalone operations (Consolidated EPS revised upward by 10%/4% for FY13/14 owing to uptick in Satyam profit estimates) and maintain our Buy recommendation on the stock with a revised target price of Rs 910 (earlier 870), valued at 8x of FY14E earnings (55% discount to our tier 1 target multiples),” says Dolat Capital research report. Bodies Corporate holding more than 50% 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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