"A steady flow of contracts from BT is good news. But this also means there might be pricing pressures. Since BT has a stake in Tech Mahindra, it might be able to get cheaper pricing," said an analyst tracking the company.
The shares of Mumbai-based Tech Mahindra rose 2.42 per cent to end at Rs 956.05 on speculation that the company is close to signing a large deal with British Telecom (BT). The stock touched a high of Rs 990 during the day.
British Telecom holds 31 per cent stake in Tech Mahindra and contributes over 60 per cent of the revenue. AT&T is the other major client of Tech Mahindra, contributing 16-17 per cent.
However, analysts tracking the company are not too excited. Rather they are concerned that the company's dependence on one client is increasing and not enough efforts are being made towards attracting new clients. This in turn is affecting valuations.
The company enjoys valuations of 11-12 times, whereas counterparts such as Satyam Computer Systems and HCL Technologies are in the range of 16-18 times. "The company has been growing at a decent pace. But due to the dependence on a single client and sector, it will not get the same valuations as some of the top tier IT companies," said Harit Shah, research analyst, Angel Broking.
Moreover, there is a complaint that Tech Mahindra has not been transparent enough on deal structures and disclosure norms. "The company won a $350 million deal from BT in the last quarter. But the actual deal size was just $100 million or 30 per cent of the amount. The remaining was an extension of earlier operations.
Moreover, the company had signed a $1 billion deal some years back, but only a small portion has been realised so far," according to an analyst from a leading brokerage house.
When asked about its recommendations on Tech Mahindra, a well-known brokerage company said, "Frankly, I don't want to say anything. It is certainly not a buy now, but the coming quarterly results will be crucial."
Market experts prefer to wait and watch the BT-Tech Mahindra story, especially as BT is in a transformational mode and expanding its operations in global markets.
