Tech Mahindra (Buy)

Target: ₹1,930

CMP: ₹1,660.65

Tech Mahindra has agreed to acquire a 100 per cent stake in Com Tec Co IT Ltd (CTC), an IT solutions and services provider serving the insurance and financial services industries, for a cash consideration of €310 million, including earnouts (about 4x EV/Sales on annualised CY21E sales). It is also acquiring a 25 per cent stake in SWFT Technologies Ltd and Surance Ltd for EUR16.5mn and €3.5 million, respectively, with an option to acquire another 20 per cent stake in the next two years.

The CTC deal will strengthen Tech Mahindra's digital capabilities with the addition of over 720 skilled professionals across digital engineering, UI/UX, architecture, agile full stack capability, cloud, AI/ML, etc. It will also expand the talent pool access across eastern European markets. The acquisition will strengthen TechM's digital transformation expertise and expand its offerings to high-end digital engineering services for some of the largest insurance, re-insurance and financial services organisations globally.

This is the 10th acquisition announced by TechM in FY22 YTD and underlines its focus on strengthening its digital business under the NXT.NOW framework. The CTC acquisition and investments into Insuretech platforms will strengthen TechM's Insurance capabilities and expand its client portfolio across insurance, reinsurance and financial services firms.

The acquisition will strengthen TechM's digital engineering capabilities and scale up its European presence with the addition of over 700 skilled IT professionals.

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