Tuesday, 18 November 2008

Merrill Lynch maintains 'buy' on Tech Mahindra

Merrill Lynch has maintained "buy" recommendation on Tech Mahindra forseeing minimal impact from British Telecom's (BT) plan to layoff about
6,000 people by March 2009 but finds the appreciating rupee versus the sterling pounds (GBP) as a key risk.

"We anticipate a maximum of 5 percent impact to revenues of Indian offshore vendors and expect minimal impact to TML given its strong strategic positioning within BT group", says their analyst report.

BT recently announced that it will reduce its total headcount by 10,000 as of March 09 and in Merrill Lynch's view, the maximum would be sub-contractors and agency staff. Meanwhile, 4,000 employees have already been cut and 6,000 more would be cut by the end of the fiscal.

However, there is currency risk, as the rupee has appreciated by 14 percent versus GBP during the quarter. "We see greater risk from the recent appreciation of the rupee against the GBP, given that TML derives nearly 70 percent revenues in GBP. Its USD/GBP hedge of 300 million pounds should help reduce impact at net profit levels. We factor in INR/GBP rate of Rs.79 and Rs.75 for FY10e and FY11e versus current exchange rate of Rs75," says the report.

"We retain our Buy rating on the stock given its attractive valuation of 4x FY10e and strong visibility from BT group" the report says.

Source: EconomicTimes

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