BT stake sale may dent investor confidence in Tech Mahindra

Written by Rachana Khanzode | Mumbai, Sep 17 | Updated: Sep 18 2008, 06:15am hrs
Speculations about British Telecoms (BT) probable divestment of its stake in Tech Mahindra (Tech M) have prompted an array of responses from analysts on the impact it could have on Tech M.

Some analysts opine that the move could have a negative impact on the confidence of Tech M investors since BT presently contributes almost 70% of its revenue.

Another group of analysts feels that there is a possibility that dilution of BTs stake in Tech Mahindra will enable the latter to grab contracts from other telecom players like AT&T, which could have a positive impact on the company.

Rajesh Jain, executive director, KPMG, said, Tech Mahindra has been building up a lot of capabilities that will ensure that the company becomes non-dependent on BT in the longer term.

Insiders note that though BT might keep only a minority stake of 5-10% in Tech M, it wouldnt discontinue giving business to the company.

Some analysts feel that a new entrant could hamper the spirit of BT. BT has pegged its 31% stake in Tech Mahindra at over $800 million, thus valuing the company at nearly $3 billion.

Harit Shah, an analyst with Angel Broking, said, Considering the number of contracts BT has in place with Tech M for the coming 2-3 years, we can say that BT will continue to be the largest revenue generator for Tech M in the short term.

He further added that it will be a positive impact on Tech Mahindra as then the company could look at better pricing from other companies.

A senior official from BT Global, on condition of anonymity, said that the money coming in would be used to focus on its customers and service providers and upgrade its services. The money will be used largely to build network sites, the source added.

Vineet Nayyar, vice chairman, managing director and CEO, Tech Mahindra said, We do not comment on speculations. The Tech Mahindra scrip closed at Rs 664.95 on the Bombay Stock Exchange, down by 3.92% on Wednesday.