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Business News/ Companies / News/  Tech Mahindra to buy firms to curb telecom bias
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Tech Mahindra to buy firms to curb telecom bias

Tech Mahindra wants to boost revenue from industries such as healthcare and retail

Chief marketing officer Hari Thalapalli said that about 47% of Tech Mahindra’s sales come from the telecom sector. Photo: MintPremium
Chief marketing officer Hari Thalapalli said that about 47% of Tech Mahindra’s sales come from the telecom sector. Photo: Mint

Hyderabad: Tech Mahindra Ltd, the Indian software-services company that bought Satyam Computer Services Ltd (Mahindra Satyam), is considering acquisitions to curb its dependence on telecommunications clients.

The company, whose clients include Vodafone Group Plc and BlackBerry Ltd, wants to boost revenue from industries such as healthcare and retail, chief marketing officer Hari Thalapalli said in an interview in Hyderabad.

“About 47% of Tech Mahindra’s sales come from the telecom sector," said Thalapalli. Software spending by telecommunication companies is likely to grow 1.3% this year, compared with 4.6% in other industries, according to researcher Gartner Inc.

“As we focus more on other verticals, we will have to have people who understand specific businesses like healthcare and retail," said Thalapalli. “Any acquisitions would be niche, not very large," he said, declining to specify how much Tech Mahindra may spend or name any targets.

“The reliance on telecommunications revenue is a weakness, and they need M&A (merger and acquisitions) to gain more revenue from other segments," said Pratish Krishnan, an analyst at Antique Stock Broking in Mumbai with a ‘buy’ rating on Tech Mahindra. “I expect the management to do something in the next six to nine months."

Tech Mahindra, based in Pune, has acquired nine companies since 2005, according to the company’s website. The company bought control of Satyam in 2009 and then merged with it in the middle of last year in an 8,990 crore transaction. The merger made Tech Mahindra the fifth-largest Indian software exporter by revenue.

Satyam

India auctioned Satyam in April 2009 after dismissing the board led by founder chairman Ramalinga Raju who admitted to inflating the company’s assets and understating debt by about $1.8 billion.

Sales for the year that ended 31 March, the first full year after the merger, are estimated to have been 18,760 crore, more than double the 12 months before, according to data compiled by Bloomberg. The company is scheduled to release results on 15 May.

“If you leave out Satyam, the growth hasn’t been as much as some of its peers," said Abhishek Shindadkar, an analyst at Icicidirect.com in Mumbai with a ‘hold’ rating on the stock. “The reason for the slow growth is obviously the telecom focus."

“Tech Mahindra will need acquisitions to broaden revenue and meet its sales target of $5 billion by 2015," said Dhananjay Mishra, an analyst at Sushil Finance Consultants Ltd in Mumbai, who rates the stock ‘accumulate’.

Shares

“Once a company achieves a certain size, it can only sustain growth inorganically, Mishra said.

Tech Mahindra has declined 3.3% this year, compared with the 5.5% decline in the S&P BSE Infotech Index. The stock gained 1.8% in Mumbai on Friday, 9 May, valuing the company at 41,480 crore.

The shares trade at 12.5 times estimated earnings, compared with a five-year average of 11.8.

Mahindra and Mahindra Ltd, India’s largest sports utility vehicle maker, owns 26% of Tech Mahindra, according to data compiled by Bloomberg.

“An acquisition is like a marriage," Thalapalli said. “You have to find the right person, and you have to make sure that you live happily ever after. You can’t afford to jump in at the first opportunity that comes your way." Bloomberg

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Published: 12 May 2014, 09:04 AM IST
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