Dear All
Tech Mahindra is entering the market with a public issue of 12,746,000shares of Rs 10 each at a price band of Rs 315-365 per share. The issueopens on August 1, '06 and closes on August 4, '06. The retail portion of the issue will be 3.5 lakh shares, which comprisesaround 30% of the total issue. The issue will raise Rs 400-465 crore at theindicated price band.
The market capital of the company at the stated price band works out to Rs3,700-4200 crore. This will make it the eighth most valuable IT company inthe country, behind Financial Technologies and ahead of Patni Computers.
Of the total issue, 3,186,480 shares will comprise a fresh issue, while therest will be sale of stake by the promoters - Mahindra and Mahindra (M&M)and British Telecommunications (BT). Post-issue, M&M's stake in the companywill fall to 46.4% from 51%, while BT's stake will reduce to 32.5% from38.6%. The fresh issue will increase the share capital of the company by 3%.
The company is a provider of IT solutions and services in thetelecommunications space. It is focused entirely on the telecom vertical andoffers services like application development and maintenance, solutionintegration, product lifecycle management, consulting, managed platforms andservices.
Tech Mahindra's key competitors will be large IT players like Infosys, TCS,Patni, Wipro and HCL Tech. It could also face competition from companiesbased in countries with low wage costs, such as China, the Philippines andeastern Europe. The acquisition of Axes Technology, a Texas-based IT company, had a positiveimpact on the company's financials. Tech Mahindra recently posted stronggrowth numbers for FY06. Consolidated sales grew 28% to Rs 1,635 crore.
Consolidated profit growth of 29% to Rs 305 crore was much higher.
Thecompany managed to cut operating expenses, as a result of which operatingprofit margins grew to 21.6% from 14.3% in FY05. The results for the firstquarter of FY07 also show strong growth due to the impact of theacquisition. Most of Tech Mahindra's revenues come from Europe (77%) and the US (20%).The company is among the top 10 exporters of IT services in India. Some ofits large clients include BT, AT&T and Alcatel. BT accounts for 69% of thetotal revenues of Tech Mahindra. Around 87% of the company's total businesscomes from its top five clients.
The issue seems attractively priced at the price band of Rs 315-365 pershare. At this price band, the price-earnings multiple works out to 15-17times on FY06 earnings. At this rate, the stock seems like an attractivebuy.
It is at a considerable discount to other players in the market, which areall trading at multiples of over 25 times. Hence, investors could look atbuying and booking profits in this scrip. The Stock may list with considerable premium . It is also a good stock to hold for more than a year.
Regards.,
Muthu Kumar.K
