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Krishnan Thiagarajan

Investors can consider locking in gains on part of their holdings in Tech Mahindra, especially those who entered the stock through the initial public offer. The stock has recorded a three-fold rise from the offer price of Rs 365 and more than doubled from its listing price of Rs 525. We believe that the fundamentals of Tech Mahindra focussed on the telecom vertical rest on a solid footing. However, in our view, most of the upside linked to fundamentals is factored in the stock price.

The stock is trading at a price earnings multiple of 25 times its annualised per share earnings for 2006-07. Though it is a trading at a discount to some of its frontline peers, it commands a valuation that is superior to its mid-sized peers. The principal risks that it faces stem from the exposure to telecom as a single vertical, high client concentration (64 per cent of revenues from British Telecom, one of the promoters) and unexpected slowdown in the US affecting business volumes or billing rates.

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