Tech Mahindra - Diwali Picks - IndiaNivesh

Huge benefits from merger - Merger between TechM and Msat will significantly reduce dependency on single client/vertical/geography. Additionally, new company will enjoy scale benefit (6 largest IT player) along with some cost rationalization.

Acquisitions to boost revenue - Hutchison Global Services (HGS) acquisition for US$87mn guarantees a business commitment of US$845 mn for next 5 years. Additionally, 51% acquisition in Comviva Technologies Ltd brings huge cross sales opportunity and expects to see yearly revenue run-rate of ~$70 mn.

Non-BT outperforming - TechM's strong traction in Non-BT (54%/67% in FY09/FY13) and stabilization in BT account over last few quarters increases revenue outlook and reduces revenue risk.

Strong deal pipeline - Won four large deals in first half - two each in +$50/+$70 mn category from non-BT side. Improved management commentary on deal flow also looks encouraging.

Valuation

On the basis of aggressive inorganic expansion, improved demand outlook and better performance by Mahindra Satyam we maintain our BUY rating with target price to Rs.1,200/share. The stock is currently trading at 9.4x FY13E and 8.5x FY14E EPS estimates, which looks attractive relative to peers.

Source : Equity Bulls

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