Buy Tech Mahindra; target of Rs 3050: P Lilladher

Prabhudas Lilladher's report on Tech Mahindra

"Tech Mahindra (TechM) has signed a definitive agreement to acquire SOFGEN Holdings Limited (SOFGEN). The transaction is expected to close by March 2015, subject to regulatory approvals. SOFGEN is a niche consultancy group with specialization in Private, Commercial and Retail Banking. Founded in 1999, SOFGEN's has 20 offices in 4 continents with strong presence in Asia Pacific, Latin America and Africa. The portfolio of service offerings are Multi‐Jurisdictional Tax Reporting, Liquidity Risk Analysis, Microfinance and additional core banking platforms."

"SOFGEN has 450+ employees with 20+ Tier 1 client relationships. Delivering solutions “in and around” core banking the company has the 2nd largest pool of Avaloq consultants (Wealth Management Product) and is Temenos’ (Core Banking Software) most prolific partner. TechM will acquire SOFGEN for sub‐$30mn (1/3rd as earn‐outs paid over next 2 years depending on Revenue and Margin growth) in all cash deal and it will add revenue of $45mn with EBITDA margin of 8‐9% to TechM’s P&L."

"We see this acquisition would strengthen presence of TechM in BFSI with new clients’ relationship. Moreover, new logos addition would provide cross selling opportunities. We retain our BUY rating with target price of Rs 3,050", says Prabhudas Lilladher research report.

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