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From being focused on telecom alone, Tech Mahindra has transformed itself into a well-diversified software major over the last 2-3 years.
With the erstwhile Satyam in its fold, the company has been able to deliver growth similar to top-tier IT companies.
Steady additions of large clients, good geographic-mix and expanding footprint in verticals such as manufacturing, technology, media & entertainment and BFSI (banking, financial services and insurance) are key positives for the company. In the manufacturing segment, it has been able to tap into the expertise of its parent Mahindra group.
Investors with a one-two year perspective can buy the shares of Tech Mahindra in light of its attractive valuation. At Rs 1,289, the stock trades at a little over 10 times its likely per share earnings for FY14. This is at a discount to peers such as MphasiS (11-12 times) and well below levels that top-tier IT players trade at (14-20 times).
In 2012-13, Tech Mahindra’s revenues grew by 22.5 per cent to Rs 14,332 crore, while net profits rose 17 per cent to Rs 2,115 crore. Tech Mahindra’s acquisitions, which have brought Hutchison Global Services and Comviva into its fold, have helped strengthen its telecom vertical.
Telecom strength
Tech Mahindra continues to be the one of the top players in the telecom space as it delivers services across the value-chain for clients, placing it ahead of even top-tier peers in this business.
It has recently won a large end-to-end deal spread over five years from BASE Company, a subsidiary of European telecom major KPN. The telecom vertical contributes 48 per cent of revenues. Manufacturing (19 per cent), TME (12 per cent) and BFSI (9 per cent) are other key segments.
Though telecom continues to lead the growth, the company has increased focus on manufacturing and BFSI segments and has been able to win large deals from the likes of Volvo and UBS. The company has a desirable geographic-mix with a blend of mature and emerging markets.
The US accounts for 45 per cent of revenues, Europe 32 per cent and rest of the world (that includes markets such as Australia, West Asia and India) make up the balance. IT spends have revived significantly in the US and Tech Mahindra has been strong in the European and Australian markets and thus is set to benefit from its presence in these regions.
In the last one year, the company has added three new clients in the $50-million-plus category and another seven in the $20-million-plus category, clearly indicating a strong momentum in deal wins. The company may incur some forex losses as it has a little over $1 billion and £267 million (together accounting for about half of its likely FY14 inflows) hedged at rates much lower than current market levels.
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