Bonanza Capital

Tech Mahindra (Buy)

CMP: ₹583.75

Target: ₹780

The stock price of Tech Mahindra (TechM) corrected by about 20 per cent from ₹749 despite reporting good set of numbers in the recent quarters.

Post integration with Satyam, TechM has transformed into a full range IT service provider, with presence in all verticals across multiple geographies. It has a fairly distributed market in US, Europe and emerging markets such as Australia, West Asia and Latin America. The company has developed more than 25 platforms and products to support its 674 active clients.

Having started as a developer for BT, TechM has always had strong expertise in the Telecom domain. Today, it remains one of the preferred IT vendors for the companies in this domain. It has also been able to add key clients such as AT&T and Verizon to its portfolio. We expect higher momentum of deals in the telecom space, driven by regulatory changes and advent of new technology (smart phone, mobility, social media), TechM to grab larger part of the same.

Risks: a) Revenues from top-10 clients contributes to about 50 per cent of TechM revenue, which poses a high risk as change in strategy by any one of top client may adversely affect its business. b) Adverse currency fluctuation may affect operating margin of the company.

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