ASK Securities: Buy Tech Mahindra

 The report said: "Tech Mahindra (TechM) reported 4Q FY07 results slightly ahead of our expectations. Revenue came in at Rs8.75 bn (+13.6% QoQ; our estimate of Rs8.55 bn) whereas PAT (pre-exceptional items) was at Rs1.96 bn (+17.6% QoQ; our estimate of Rs1.84 bn). The upside has mainly come f rom non-operating items like higher other income component (gain of Rs154 mn as against a loss of Rs32 mn in 3Q FY07) and lower effective tax rates (9.4% versus 11.8% of PBT in 3Q FY07).

"On the auditor's advice, the company has fully expensed Rs5.25 bn, the one-time payment made to BT Global Services (BTGS). Thus, post-exceptional items, the company has actually incurred a loss of Rs3.29 bn in 4Q FY07.

"We had assumed that the upfront payment made to BTGS would be amortized over the period of the contract (five years). But, with the company expensing it out completely in 4Q FY07, our EPS estimates for FY08E and FY09E get revised upward to Rs67.5 (+8.2%) and Rs90.0 (+4.2%) respectively. As a result of this, we are increasing our target price to Rs1,890 (21x FY09E EPS) from the earlier target price of Rs1,815. The stock trades at 24x FY08E and 18x FY09E EPS. Maintain Buy."

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