IIFL has recommended a reduce rating on Tech Mahindra with a target price of Rs 345 in its April 15, 2009 research report.
“Tech Mahindra emerged as the highest bidder for Satyam, at Rs 58/share (other bidders were Larsen & Toubro at Rs 49.5/share and Wilbur Ross at Rs 20/share). It would now have to pay USD 351 million for allotment of 31% stake and another USD 227million for the purchase of 20% through an open offer. While the need for extensive restructuring at Satyam makes it an extremely challenging deal, Tech Mahindra gets the chance to mine Satyam’s diverse client base.”
“Further, stemming clients’ exodus would be relatively difficult for Tech Mahindra. Satyam has already lost 17% of its revenue base since January 2009 and management reckons that another 13% loss cannot be ruled out. This estimate is worse than our current estimate; we now expect 35% erosion in revenues within a year. The resultant impact on margins is severe and there is a non-zero probability of Satyam making losses in the near term. Reduce, target price of Rs 345,” says IIFL’s research report.
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