Tech Mahindra (TM) reported a 5.3% q-o-q growth in revenue, driven by a 12.2% upswing in BT revenue even as non-BT portion went down by 5.5%.
The company managed to realize $20 million from the BTGS deal in Q408, as against $10 million in Q308. It now has about 1,200 people working on the deal, which is expected to significantly contribute to its top line in the coming quarters.
EBITDA margin registered a marginal decline of 17 bps q-o-q to 21.8%. A 71 bps reduction in the SG&A share and a 4% increase in the utilization rate were offset by the appreciation in the rupee and a rise in transition costs. We believe that EBITDA margin will remain stable at 22-23% in FY09E.
The Company has signed five to six large-sized deals in the last three quarters, which includes a five-year deal with BT worth $350 million. Tech Mahindra has an order backlog of over $2 billion for the next four to five years and we project a 26% revenue growth in FY09E.
At the current market price (CMP) of Rs789, the stock is trading at a forward P/E of 11.3x and 9x for FY09E and FY10E, respectively, as against the industry average of 15.5x for FY09E.
Based on DCF valuation, we have arrived at a price of Rs925 for the next nine months, showing an upside of 17% from the current level. We maintain a BUY rating.