Reiterate ‘outperform’ rating on Tech Mahindra (TechM) with a 12-month target price of R3,200 per share, valuing the stock at 16x FY17e EPS.
At current market price, the stock trades around 15.7x FY16e EPS. In our view, the the acquisition of Switerland-based SOFGEN Holdings would give TechM a reasonable entry into niche segments like private banking and wealth management. The deal would enhance capability/ scale and give client access in a focus vertical like BFSI, which accounts for ~10% of TechM’s consolidated revenues. In addition, cross-selling opportunities and a wider bouquet of services for the existing clientele would catalyse growth.
TechM last week signed a definitive agreement to acquire SOFGEN, a niche consulting and services company with worldwide presence, specialising in private/ wealth, commercial and retail banking solutions. TechM would pay sub-$30 million for 100% stake. The deal is expected to be closed by March 2015 after regulatory approvals.
The deal would give TechM access to the second-largest pool of Avaloq consultants globally and boost its capability in the Temenos platform, thereby enhancing TechM’s competencies in modernised core banking. TechM would get access to eight of the top 10 global wealth managers and private banking companies.
By IDFC Institutional