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Company Update | IT

September 12, 2013

Tech Mahindra
Analyst Meet Update
We recently attended the first analyst meet of Tech Mahindra (TechM) post the companys merger with Satyam held at Pune. The meet was focused on giving a heads up about the strategy of the company to reach its aspiration of clocking US$5bn in revenues in the next three years through both, organic and inorganic growth. The essence of the meet was skewed towards how the Management will utilize the merger synergies in order to scale the business. Following are the key highlights: Four broad strategies to achieve US$5bn goal: The Management highlighted the four plank strategy that the company is working on to achieve its US$5bn aspiration: 1) Business momentum: focusing on investing and expanding the companys existing portfolio of enterprise business around momentum industry verticals - telecom, manufacturing and BFSI, 2) Platforms: introduction of new platforms and processes as-a-service using incubation and partnering strategy, 3) Innovation: investments in developing products and work around the new areas of cloud, mobility and analytics, and 4) Inorganic growth: Eyeing for acquisition to expand geographic presence, and product offerings. Enterprise services focus on execution: The Management indicated that the enterprise services business is currently going though some changes. The deal pipeline in the enterprise services has improved a lot (in tandem with the peer companies) and the company is now focusing on top client mining to increase large deals in the deal pipeline with merger synergies coming in. The company has ~400+ active customers in this service area. Telecom company continues to be the market leader: The telecom industry vertical continues to be one of the key focus areas for the company with TechMs competency as a network guarantor, productivity enabler and experience creator. The company highlighted a six pillar strategy for growth to focus on CXO (COO, CMO, CFO, CIO, CTO, CSO) with service offerings across the entire IT services value chain of a telecom player like IT, network, infrastructure, BSG, VAS, security to deliver managed services across system, process engineering and agility. The company has ~150+ active customers in this service industry, which include 12 of the top 20 wireless TSPs in the world and 11 of Fortune 500 global companies. Manufacturing increased traction: The Management indicated that the companys position in the market is relatively healthy given the expertise it derives from Satyams capabilities. In addition, Mahindra group parentage (automobile major) has further aided the company in differentiating itself as a full service player. The company is seeing good demand traction coming from subsectors such as automotive, aerospace, defense and hi-tech for services including product engineering and supply chain management. The company has ~130+ active customers in this industry vertical, of which 25 are in the list of Fortune 500 companies. BFSI improved demand: In the financial services industry vertical, the company's footprint is substantially lesser than larger peers and it is also one of the matured market spaces, so the company has identified mobility, billing, wealth management and risk as key focus areas to invest and grow further.
Please refer to important disclosures at the end of this report

CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code IT 30,899 (2,908) 0.4 1,434/865 94,066 10 19,997 5,913 TEML.BO TECHM.IN

`1,332 `1,531
12 Months

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 47.2 15.8 26.8 10.2

Abs. (%) Sensex Tech Mahindra



3yr 6.4 87.7

4.5 12.0 37.6 49.3

Ankita Somani
+91 22 39357800 Ext: 6819 ankita.somani@angelbroking.com

Tech Mahindra | Company Update

Outlook and Valuation: The merged entity has an industry vertical focused sales structure in US and UK while it has a country focused structure for Continental Europe, Asia and Latin America. Management noted that future acquisitions will be a function of capabilities and market access. Tech Mahindra remains confident of improving revenue growth citing healthy deal pipeline along with pick up in discretionary spending, primarily in the US. Modest demand in the telecom vertical (non-BT business), improved diversification post merger with Satyam with increase in deal win ratio and focus on products and platforms bode well for the company. Further given significant currency tailwinds akin to peers, Tech Mahindra remains confident of maintaining margins at current levels. We expect a CAGR of 11% and 17% in USD and INR revenue over FY2013-15E. We reiterate our Buy rating on TechM with a target price of `1,531. Key financials (Consolidated)
Y/E March (` cr) Net sales % chg Net profit % chg EBITDA margin (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) FY2011
5,140 11.1 786 10.9 19.5 49.3 27.0 5.2 23.5 16.9 3.6 18.2

11,702 127.7 1,806 129.8 16.7 78.0 17.1 3.6 37.5 20.1 1.3 7.8

14,332 22.5 2,115 17.1 21.4 82.6 16.1 4.6 30.9 27.6 1.0 4.8

17,823 24.4 2,681 26.8 22.5 113.1 11.8 3.4 28.7 28.9 0.7 3.1

19,729 10.7 2,794 4.2 21.4 117.7 11.3 2.6 23.3 25.1 0.5 2.3

Source: Company, Angel Research; Note: CMP as on 11 Sept, 2013

Recommendation summary
Company HCL Tech Hexaware Infosys Infotech Entp. KPIT Cummins MindTree Mphasis NIIT^ Persistent TCS Tech Mahindra Wipro Reco. Neutral Neutral Neutral Neutral Accumulate Neutral Neutral Neutral Neutral Neutral Buy Neutral CMP (`) 1,065 126 3,121 188 144 1,051 441 21 573 1,993 1,332 475 Tgt. price (`) 155 1,531 Upside (%) 7.5 15.0 FY2015E EBITDA (%) 22.6 21.5 27.1 17.6 17.8 20.7 17.2 9.1 23.8 30.0 21.4 22.2 FY2015E P/E (x) 14.4 9.4 15.6 8.1 8.7 9.5 10.1 4.0 10.1 19.3 11.3 14.4 FY2012-15E EPS CAGR (%) 27.1 14.5 11.2 16.9 27.5 27.5 4.9 (7.1) 17.1 23.8 14.7 13.3 FY2015E RoCE (%) 1.8 1.2 2.6 0.5 0.7 1.0 0.7 0.0 0.8 4.0 0.5 1.9 FY2015E RoE (%) 23.7 24.0 20.0 14.3 19.5 21.2 14.0 11.9 16.2 29.5 23.3 20.1

Source: Company, Angel Research; Note: ^Valued on SOTP basis

September 12, 2013

Tech Mahindra | Company Update

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Tech Mahindra No No Yes No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

September 12, 2013

Tech Mahindra | Company Update

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Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Bhavesh Chauhan Viral Shah V Srinivasan Yaresh Kothari Ankita Somani Sourabh Taparia Bhupali Gursale Vinay Rachh Amit Patil Twinkle Gosar Tejashwini Kumari Akshay Narang Harshal Patkar Nishant Sharma Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Tejas Vahalia Dilip Patel Research Editor Production Incharge tejas.vahalia@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Dealer Dealer Sr. Executive mayuresh.joshi@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com akshayr.shah@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sameet.chavan@angelbroking.com sacchitanand.uttekar@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Sr. Analyst (Metals & Mining) Sr. Analyst (Infrastructure) Analyst (Cement, FMCG) Analyst (Automobile) Analyst (IT, Telecom) Analyst (Banking) Economist Research Associate Research Associate Research Associate Research Associate Research Associate Research Associate Research Associate sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com bhaveshu.chauhan@angelbroking.com viralk.shah@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com ankita.somani@angelbroking.com sourabh.taparia@angelbroking.com bhupali.gursale@angelbroking.com vinay.rachh@angelbroking.com amit.patil@angelbroking.com gosar.twinkle@angelbroking.com tejashwini.kumari@angelbroking.com akshay.narang@angelbroking.com harshal.patkar@angelbroking.com nishantj.sharma@angelbroking.com

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September 12, 2013