Tech Mahindra hits life high after Merill Lynch recommends buy

Tech Mahindra attained a lifetime high of Rs 1,133 after Merill Lynch recommended a 'buy' on the scrip.

It was presently trading up nearly 4%, at Rs 1,116.50, while the influential brokerage set a price target of Rs 1,280 on the scrip. As many as 11.8 lakh shares changed hands in the counter on BSE.

Merrill Lynch has cited an expected strong 27% compounded annual growth rate (CAGR) in earnings over FY 2007 to FY 2009 period, driven by accelerating IT spend by top client BT (British Telecom) and rapid ramp by AT&T. The brokerage also expects accelerated IT offshoring by telecom service providers to benefit Tech Mahindra as it is the largest vendor in this space.

The brokerage has said that the risks to its recommendation are concentration in a single vertical, telecom and client concentration. Tech Mahindra derives a large part of its revenue from a single client, British Telecom. BT contributed to a whopping 64% of revenue in Q2 September 2006.

The stock surged for the second day in a row today. It had risen 8% on Wednesday (15 November), to a lifetime closing high of Rs 1,074.15. The stock had spurted last month following robust Q2 results.

The current price of Rs 1,116.50, discounts its April-September 2006 annualised EPS of Rs 43.30, by a PE multiple of 25.7.

Tech Mahindra’s consolidated net profit surged 66% on a sequential basis to Rs 177 crore for Q2 September 2006, partly due to a write back of prior period tax of Rs 33.90 crore.

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