Emkay - Tech Mahindra

The results for the quarter gone by was quite inline with our expectations, and it reflects strong business tractions of TML. Going forward, we expect TML to continue its growth momentum for coming quarters, with incremental growth coming from US and European regions coupled with strong ramp up in the BT and non-BT accounts. We have maintained our estimates for FY08Eand FY09E, and we are looking very closely at the ramp up in $1 bn BTGS deal and other key client accounts ramp up and more importantly on the margins movements, as in the initial year the margins in the BTGS deal will be lower coupled with 15% offshore salary hike coupled with lower utilization would keep the margins under pressure.

We expect TML’s revenue and net profit to grow at a CAGR of 53% and 43% over FY07E-09E. The TML stock trades at a P/E of 23x FY08E and 16x FY09E with an EPS (On fully diluted equity of Rs 1320 m of FV of Rs 10) CAGR of 43% estimated over FY07-09.

We recommend a BUY on TML with a target price of Rs 1794, at our target price the stock will be valued at 19x for FY09E