The company is generating healthy revenues through the EDS channels. Also, after the HP-EDS merger, we expect the revenue to augur with the increase in delivery and client coverage.
Further, vendor consolidation seems to be going in its favour as revenue contribution from top five clients improved by 200 bps and 400 bps on the sequential and yearly bases, respectively.
With the robust gross hiring guidance of 7,000-9,000, we estimate the revenue growth for FY09E and FY10E at 26% and 19%, respectively.
However, vendor consolidation is expected to lead to pressure on billing rates. Consequently, we remain circumspect in our EBITDA margin estimates and maintain them at ~17% for both FY09E and FY10E.
At the current market price, the stock is currently trading at a forward P/E of 16.6x and 14.5x for FY09E and FY10E, respectively.
Based on DCF valuation, our target price is Rs246, assuming the Rf of 9%, WACC of 15.9% and terminal growth rate of 5%. We maintain our HOLD rating on the counter.