Dollar has been sustainably below R50 since Apr12 and has moved below R60 in the past two months. This provides a natural tailwind for the sector, as a majority of revenues are in overseas currencies ($, pound, euro, etc.) while most of the costs are in rupee .
We have been fairly sceptical of TechMs ability to grow given its significant exposure to telecom. However, the company has executed well and we are upgrading the stock as the telecom vertical is finally showing signs of life. Further sizeable quarterly revenues (~$725m) would mean an invitation to much larger deals, something that it was not a party to until now. While BT continues to decline at ~12% of revenues, it is small to move the needle. FY14E ROEs at 34% with a large part of goodwill knocked off reserves and ) valuations at ~10x FY15E EPS seem reasonable given the improved growth prospects.
We have revised our estimates across the board, as we now factor in a weak rupee. Our target prices also move up we have tweaked our target multiple only for TechM (13x vs 11x previously), as we believe that the discount to HCL Tech is likely to narrow over a period of time.