Tech Mahindra shares fall after company announced acquisition, interim dividend; check target price

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Updated: February 25, 2020 12:16:24 PM

Tech Mahindra has seen growth momentum accelerate over FY20 thanks to a spate of large deals across telecom, healthcare and insurance. It has been able to pivot its service portfolio to digital services.

Tech mahindra share priceTech Mahindra Limited will acquire the Indian subsidiary of Zen group- ZEN3 Infosolutions Private Limited while Tech Mahindra (Americas) will acquire Zen3 Infosolutions (America) Inc. along with remaining entities in the group.

Tech Mahindra shares were trading lower on BSE after the company announced to acquire 100 per cent stake in the Zen3 Infosolutions (America) for $64 million (Rs 460 crore). Tech Mahindra in a filing to BSE said that this acquisition would bring strong capabilities in AI enablement services, AI Speech solutions, Cloud engineering, software product engineering and development operations. Around 11.30 AM, Tech Mahindra shares were trading half a per cent lower at Rs 816 apiece on BSE. 

Tech Mahindra Limited will acquire the Indian subsidiary of Zen group- ZEN3 Infosolutions Private Limited while Tech Mahindra (Americas) will acquire Zen3 Infosolutions (America) Inc. along with remaining entities in the group.  Out of $64 million, $42 million (Rs 300 crore) will be paid at closing. However, another $22 million will be paid over three years, based on financial performance. The all-cash transaction is expected to close by April 1, 2020.

Separately, Tech Mahindra has also announced an interim dividend for the financial year 2019-20 of 200 per cent or Rs 10 per equity share. “TechM has seen growth momentum accelerate over FY20 thanks to a spate of large deals across Telecom, Healthcare and Insurance. It has been able to pivot its service portfolio to Digital Services (41% of 3Q revenues) aided by targeted acquisitions and successful deal wins, particularly in its non-telecom business,” J P Morgan, Asia Pacific Equity Research said in a research report. The brokerage has maintained its neutral rating to stock with a target price of Rs 850 “based on a 14x one-year forward P/E, in line with its three-year average,” J P Morgan said.

The brokerage firm highlighted that “rupee depreciation that could boost earnings as Tech Mahindra benefits from a weaker local currency; we estimate every 1% drop in the Rs/US$ helps earnings by 1.5-2.5%”.

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