Tech Mahindra – Bigger, Better, More Diversified - Religare

Size does matter...: FY14 sales at US$3bn poised to rise to US$5bn by FY16. TECHM is now the sixth largest IT player, and is the best-positioned mid-cap to enter the large-cap club.

...especially in key verticals...: Leveraging inherent strengths in Telecom and Manufacturing (66% of revenues). Improving visibility on size (Telecom topline at US$1.5bn) helps chase large deals (US$20m+) hitherto restricted to large-caps.

..and drives larger deal wins: Post-merger, TECHM's deal-win momentum has been healthy (13 US$20m+ deals in Q2 alone; cf. Q2 revenues at US$760m). Deal pipeline remains healthy with c.5-6 large deals; improving win rates for deals at US$5mn+ TCV (Total Contract Value).

Mid-cap valuations with large-cap earnings potential: Valuations at 13x FY15e EPS (despite 98% price return in 2013) look attractive. Sustained growth performance and continued deal wins would drive a further re-rating (mid-cap avg. PE at 11x, large-cap PE at 16x).

Source : Equity Bulls

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