Tech Mahindra an outperformer, tgt Rs 910: Karvy

Karvy Stock Broking firm has maintained outperformer rating on Tech Mahindra with target price of Rs 910 in its February 07, 2008 report. "Tech Mahindra (TM) in the first half of the current fiscal reported muted revenue growth and its profits on a sequential quarter slipped, as 2 of its top clients were undertaking internal restructuring. Consequently most of the investors were not sanguine about its Q3 numbers, and Rs too appreciated against the GBP by around 2.5% in the OND quarter. However, the company reported much better set of financials than what we estimated and most importantly it has managed to keep the margins from any slippage, despite the USD1billion from BT would commence from Q1FY09. What is pertinent is, it is making best efforts to grow the US markets and also reduce its dependency on its largest client BT. We believe BT, AT&T and Alcatel all are going restructuring in some form or the other, as a result, we may not witness double digit growth rate for the next couple of quarters. The moment these customers step up the outsourcing we would see change to the fundamentals and to its growth. After factoring the rupee to appreciate by 5%, we expect the revenues to grow by 30% for the next two years and the profits to grow by 25%. At the current price the stock is trading at a valuation of 9.8xFY09E and 7.8xFY10E, with return ratios hovering at the early-forties. Since the company derives 70% of revenues from Europe, we believe the stock can easily give 20% returns over the next one year. We continue to maintain with our outperfomer rating on the stock. The reason for the stock’s underperformance has been the slow progress of the BT deal and the fear of INR appreciating against GBP, which too great extend is addressed," says Karvy report.