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Research
Buy Tech Mahindra - In Top Gear - Dolat Capital
Posted On : 2012-12-27 20:13:02( TIMEZONE : IST )
Traction is back: After successful integration with MSAT, Tech M has been turning for the better on all the right notes. It has announced acquisition of Hutchison captive BPO and 51% stake in Global VAS provider entity, Comviva. It has also inked multi-million USD deals with KPN Dutch Telecom (size about USD 100mn) and other deal with UK based TSP (about USD 70mn).
Efficeincy to flow in: The combined entity (TechM + MSAT) would gain on efficiency by optimum utilization of resources through better bench management, rationalization of office/centers across the globe and better procurement advantage.
2+2=5: The combined entity would enrich in terms of service offerings, geographical presence, large client pool offering cross/up sell opportunities (Clients: TechM 130 ; MSAT 372) and a de-risked model in terms of high client/vertical concentration. MSAT is among top5 Indian vendors with deal pipeline addition in CY12.
Concerns overcame: It has overcome most of its concerns with declining BT revenue share, settlement of various claims on Satyam (Upaid, Aberdeen, Class Action Suit), BT stake sale, high losses turned into profits and client/employee attrition. As most of the concerns already addressed it would start gaining on business traction and better productivity.
Merger on cards: Post merger the combined entity would become 6th largest Indian IT company with a revenue of over USD 3.5bn, sales growth of 12%+ and EBIT margin of 15%+. With only AP court verdict pending, we believe the stock is all set for a re-rating driven by scale, derisked model and improved operating metrics.
View: We have build in modest revenue growth of 11% over FY13-15E and OPM decline of 100bps which we believe is fairly conservative. We believe consensus estimates are quite pessimistic on earning gains post integration and thus would undergo regular upgradation in coming period. We maintain TechM as our top pick in the sector with a TP of Rs.1325, valued at 10x of its FY15E EPS of Rs.132.5.
