Tech Mahindra –Buy- Anand Rathi
Tech Mahindra’s profit was higher than our estimate on account of higher forex gain. We lower FY11/12 estimates 7.5%/6.6% respectively to factor in rupee appreciation, salary hikes (mentioned by the company) and a higher tax rate, and lower target price to Rs1,010 (from Rs1,130).
Forex boosts profit. In rupee terms, 4Q revenue slid 0.3% q-o-q to Rs1,180 crore, and in dollar terms rose 1.9% (growing 3.7% on constant currency). Lower wage and travel costs led to margins being flat q-o-q. Forex gain of approximately Rs620 million helped TechM’s profit rise 30.9% q-o-q.
Tech Mahindra added three clients (taking the total to 113). The offshore mix was up 100bp q-o-q to 62%. Blended utilization was flat. Europe grew 1.4% q-o-q. BT revenue is seen to be stable, at approx £70-72m/quarter. Stress is still seen with its other clients, and BT senses growth in two to three quarters.
Our new target price of Rs1,010, comprises Rs720 (12x FY11e earnings, maintained at 12x) and Rs290 (on account of its 42.7% holding in Satyam, after a 25% holding co. discount).
Much depends on Satyam’s reported figures (June 2010), and details of the BT deals are still not known. We believe that there exist risks on both these fronts.
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